Canada-U.S. Relations
Carl Ek, Coordinator
Specialist in International Relations
Ian F. Fergusson, Coordinator
Specialist in International Trade and Finance
January 2, 2014
Congressional Research Service
7-5700
www.crs.gov
96-397


Canada-U.S. Relations

Summary
Relations between the United States and Canada, though generally close, have undergone changes
in tenor over the past three decades. During the 1980s, the two countries enjoyed good relations.
The early 1990s brought new governments to Ottawa and Washington, and although Canada’s
Liberal Party emphasized its determination to act independently of the United States when it
thought necessary, relations continued to be cordial. In early 2006, a minority Conservative
government led by Stephen Harper assumed power in Ottawa. It was regarded as being more
ideologically in tune with the George W. Bush Administration than the Liberals had been; some
observers believe that this compatibility helped facilitate bilateral cooperation. This cooperation
has continued with the election of President Obama in November 2008, despite the differences in
the two leaders’ governing philosophies.
The two North American countries continue to cooperate widely in international security and
political issues, both bilaterally and through numerous international organizations. Canada’s
foreign and defense policies are usually in harmony with those of the United States. Areas of
contention have been relatively few, but sometimes sharp, as was the case in policy toward Iraq.
Since September 11, 2001, the United States and Canada have cooperated extensively on efforts
to strengthen border security and to combat terrorism, particularly in Afghanistan. Both countries
were also active participants in the U.N.-sanctioned NATO mission in Libya.
The United States and Canada maintain the world’s largest bilateral trading relationship, one that
has been strengthened over the past three decades by the approval of two major free trade
agreements. Although commercial disputes may not be quite as prominent now as they have been
in the past, the two countries in recent years have engaged in difficult negotiations over items in
several trade sectors, including natural resources, agricultural commodities, and intellectual
property rights. The most recent clash centered around the Buy America provision of the 2009
economic stimulus law. However, these disputes affect but a small percentage of the total goods
and services exchanged. In recent years, energy has increasingly emerged as a key component of
the trade relationship. In addition, the United States and Canada work together closely on
environmental matters, including monitoring air quality and solid waste transfers, and protecting
and maintaining the quality of border waterways.
Many Members of Congress follow U.S.-Canada environmental, trade, and trans-border issues
that affect their states and districts. In addition, because the countries are similar in many ways,
lawmakers in both countries study solutions proposed across the border to such issues as federal
fiscal policy and federal-provincial power sharing.
This report begins with an overview of Canada’s political scene, economic conditions, security
and foreign policy, and environmental initiatives, focusing particularly on issues that may be
relevant to U.S. policy makers. This country survey is followed by several summaries of current
bilateral issues in the political, international security, trade, and environmental arenas. The
questions following each summary are designed as potential inquiries to Canadian officials to
promote thought and discussion among policy makers.

Congressional Research Service

Canada-U.S. Relations

Contents
Overview .......................................................................................................................................... 1
Canada’s Domestic Scene .......................................................................................................... 3
Background and Current Political Situation ........................................................................ 3
National Unity ..................................................................................................................... 6
Foreign and Security Policy Issues ............................................................................................ 7
U.S.-Canada Foreign and Security Policy Issues ................................................................ 9
Economic and Trade Issues............................................................................................................ 18
Economic Growth ............................................................................................................. 18
Budget Policy .................................................................................................................... 18
Monetary Policy ................................................................................................................ 19
Energy ............................................................................................................................... 19
Bilateral Trade Issues ........................................................................................................ 19
Environmental Issues ............................................................................................................... 23
Canada and Afghanistan ................................................................................................................ 24
Issue Definition ....................................................................................................................... 24
Background and Analysis ........................................................................................................ 24
Status of the Issue .................................................................................................................... 25
Questions ................................................................................................................................. 25
Canada’s Arctic Sovereignty Claim ............................................................................................... 26
Issue Definition ....................................................................................................................... 26
Background and Analysis ........................................................................................................ 26
Status of the Issue .................................................................................................................... 27
Questions ................................................................................................................................. 28
Border Security Issues ................................................................................................................... 28
Issue Definition ....................................................................................................................... 28
Background and Analysis ........................................................................................................ 29
Status of the Issue .................................................................................................................... 33
Questions ................................................................................................................................. 33
Canada’s Free Trade Agreement Agenda ....................................................................................... 34
Issue Definition ....................................................................................................................... 34
Background.............................................................................................................................. 34
Status of the Issue .................................................................................................................... 36
Questions ................................................................................................................................. 36
North American Cooperation on Competitiveness and Security ................................................... 37
Issue Definition ....................................................................................................................... 37
Background and Analysis ........................................................................................................ 37
Status of the Issue .................................................................................................................... 38
Questions ................................................................................................................................. 39
Canada’s Financial System ............................................................................................................ 39
Issue Definition ................................................................................................................. 39
Background and Analysis .................................................................................................. 39
Questions ........................................................................................................................... 42
Canada’s Supply Management Programs for Dairy, Poultry, and Eggs ......................................... 42
Issue Definition ....................................................................................................................... 42
Congressional Research Service

Canada-U.S. Relations

Background and Analysis ........................................................................................................ 43
Status of the Issue .................................................................................................................... 44
Questions ................................................................................................................................. 44
Country of Origin Labeling ........................................................................................................... 45
Issue Definition ....................................................................................................................... 45
Background and Analysis ........................................................................................................ 45
Status of the Issue .................................................................................................................... 46
Questions ................................................................................................................................. 47
Intellectual Property Rights ........................................................................................................... 48
Issue Definition ....................................................................................................................... 48
Background and Analysis ........................................................................................................ 48
Status of the Issue .................................................................................................................... 49
Questions ................................................................................................................................. 49
Electric Reliability, Trade, and Access to Renewable Power ........................................................ 50
Issue Definition ....................................................................................................................... 50
Background and Analysis ........................................................................................................ 50
Reliability .......................................................................................................................... 51
Trade and Renewable Energy Development ..................................................................... 52
Status of the Issues ............................................................................................................ 53
Questions ................................................................................................................................. 53
U.S. Energy Security and Canadian Oil Sands .............................................................................. 54
Issue Definition ....................................................................................................................... 54
Background and Analysis ........................................................................................................ 55
Status of the Issue .................................................................................................................... 55
Questions ................................................................................................................................. 56
Keystone XL Pipeline .................................................................................................................... 56
Issue Definition ................................................................................................................. 56
Background and Analysis .................................................................................................. 56
Status of the Issue .............................................................................................................. 57
Questions ........................................................................................................................... 58

Contacts
Author Contact Information........................................................................................................... 59

Congressional Research Service

Canada-U.S. Relations

Overview1
Relations between the United States and Canada, though generally cordial, have undergone
several changes in tenor over the past three decades. The 1980s and early 1990s were marked by
an increasingly close partnership, whose milestones included the mid-1980s “Shamrock
Summits” (named after the Irish heritage shared by the two countries’ leaders, Brian Mulroney
and Ronald Reagan), the 1989 U.S.-Canada Free Trade Agreement, and the 1994 North American
Free Trade Agreement. To many Canadians, however, Ottawa seemed at times to have drawn a bit
too close to Washington, DC, with Canada casting itself too willingly in a secondary role.
In 1994, one Canada watcher observed that in the foreign policy arena, Canada “politely distances
itself from the United States” in certain ways. In an interview that year, the newly elected Liberal
Prime Minister Jean Chrétien summed up his view of the bilateral relationship: “We like each
other. I just don’t want Canada to be perceived as being the 51st state of America.” Many believe,
however, that this initial show of mild reserve was intended for domestic consumption, and that
Canada and the United States in fact continued to enjoy excellent relations. Chrétien and
President Bill Clinton are said to have had congenial meetings; they focused on areas where the
two countries were able to reach agreement, including environmental issues, cooperation on
border measures, and technology projects.2
In February 2001, President George W. Bush met with Chrétien. The two leaders discussed
energy, missile defense, and trade. After September 11, however, economic and environmental
issues often took a back seat to joint efforts to improve security, both at home and abroad. Canada
became involved in the crisis at the outset, and has cooperated closely with the United States in
efforts to combat international terrorism.
Nevertheless, Chrétien did not establish with President Bush the same rapport that he had enjoyed
with Clinton. Differences over a number of issues tended to strain relations. The Bush
Administration inherited some long-standing trade disputes, most notably over wheat and
softwood lumber, and Canada and the United States were on different sides of several
international issues, including the U.S. withdrawal from the ABM treaty, and the International
Criminal Court. But it was over security-related matters, particularly defense spending, Iraq, and
missile defense, that the two governments had their sharpest differences. Despite these
controversies, Canada and the United States continued to work together on a number of fronts to
thwart terrorism, including strengthening border security, sharing intelligence and expanding law
enforcement cooperation. The Canadian government passed a new anti-terrorism act, and Canada
has contributed significant military assets to the NATO-led coalition in Afghanistan.
Paul Martin, who became prime minister in December 2003, met several times with President
Bush. At the January 2004 Summit of the Americas, the two leaders discussed several topics and
came to agreement on Canadian eligibility to bid on reconstruction contracts in Iraq and on the
ground rules for U.S. deportation of Canadian citizens. In April 2004 in Washington, DC, Martin

1 Prepared by Carl Ek, Specialist in International Relations; and Ian F. Fergusson, Specialist in International Trade and
Finance, Foreign Affairs, Defense, and Trade Division.
2 “Canada Narrows Its Foreign Policy Goals to Focus on Trade.” By Charles Trueheart. Washington Post. November
17, 1994. p. A44. “Don’t Take Canada For Granted.” By Tad Szulc. Parade Magazine. February 20, 1994.
Congressional Research Service
1

Canada-U.S. Relations

and Bush met once more and talked about a variety of issues, from terrorism to the “mad cow”
crisis. In November 2004, during President Bush’s first official visit to Canada, missile defense,
border security, and global “hot spots” were on the agenda. Although bilateral tensions heated up
in 2005 over the issues of missile defense and softwood lumber, Canada’s government and private
citizens responded promptly and generously to assist the United States after Hurricane Katrina.3
In February 2006, after a come-from-behind election victory, the Conservative Party assumed
power as a minority government, and Stephen Harper became Canada’s 22nd Prime Minister—the
first Conservative to lead the country in 12 years. Observers believed that Harper’s government
was somewhat more politically compatible with the Bush Administration in many areas.
However, although the policy orientation of Harper’s Conservatives may be similar to that of the
Republicans in Washington, DC, differences still arose on certain issues, particularly those that
touched upon matters of perceived sovereignty. For example, on January 26, 2006, days before
his inauguration, Harper sharply took exception to comments made earlier by the U.S.
Ambassador to Canada and asserted Canada’s sovereignty over the so-called Northwest Passage,
the frozen arctic region that global warming may turn into a waterway linking Asia and Europe.4
The election of Barack Obama in November 2008 signaled a new chapter in U.S.-Canada
relations. Unlike President Bush, Obama has been quite popular in Canada. Some believe that this
favorable view may be facilitating the Harper government’s cooperative efforts with the United
States. In addition, although Harper has a more conservative orientation than Obama, many
observers believe both leaders are pragmatic in their approach to solving public policy problems,
and that the bilateral relationship will continue to be collaborative and productive. On February
19, 2009, renewing a tradition broken in 2001 by President Bush, President Obama made Canada
his first official foreign visit. He and Harper focused on trade, climate change, and Afghanistan,
among other issues; in September 2009, Harper met with Obama at the White House. Harper
traveled to Washington, DC, to meet with Obama again in February and December 2011; the two
leaders agreed to the establishment and implementation of a U.S.-Canada Regulatory Cooperation
Council and issued a Declaration on a Shared Vision for Perimeter Security and Economic
Competitiveness. Prime Minister Harper was in Washington, DC, again in April 2012 to attend a
North American summit meeting with President Obama and Mexican President Felipe Calderon.5
In recent months, however, disagreements have emerged over the issues of energy/environment
(approval of the Keystone XL pipeline) and intellectual property rights.6

3 “Bush Launches Bid To Repair US-Canada Ties.” Agence France-Presse. November 30, 2004.
4 “Harper Tells U.S. To Butt Out On Plans For Defending Canada’s Arctic.” Canadian Press. January 26, 2006.
5 “Obama Makes Overtures to Canada Prime Minister.” New York Times. February 20, 2009. “Obama’s Popularity
Higher Than Ever In Canada: Poll.” National Post. September 20, 2009. “Obama May Be Slapped By U.S. Electorate,
but Canada Still Claps: Poll.” The Canadian Press. November 4, 2010. “PM and U.S. President Obama Announce
Shared Vision For Perimeter Security and Economic Competitiveness Between Canada and the United States.” Web
site of the Canadian Prime Minister’s Office. February 4, 2011. http://www.pm.gc.ca/eng/media.asp?category=1&
featureId=6&pageId=26&id=3931.
6 “Obama Risks Relationship, Former Ambassador Says.” Toronto Sun. July 30, 2013. “Obama’s Pick for Ambassador
to Canada Faces Senate Grilling.” Globe and Mail. December 11, 2013.
Congressional Research Service
2

Canada-U.S. Relations

Canada’s Domestic Scene
Background and Current Political Situation
The Liberal Party, which took power from the Conservatives in 1993, was by 2003 being
commonly referred to as “Canada’s natural ruling party.”7 Maintaining a Liberal majority
appeared to be a safe bet at that time, but in early 2004 the “sponsorship scandal” erupted.
Canada’s Auditor General issued a report stating that, under a program intended to build support
for Canadian unity, the Chrétien government had funneled C$100 million in public funds for
dubious contracts to Québec advertising firms associated with the Liberal party.8
The Liberals’ standing in the polls plummeted, and support for the opposition parties
strengthened. To the right of the Liberals, two conservative parties had merged under a new
leader, Albertan Stephen Harper. And to the left, the New Democratic Party (NDP) likewise had
recently elected a dynamic party chief, Jack Layton.
In June 2004 elections, the Liberals, despite losing seats in the House of Commons, won a
plurality and formed a minority government. In November 2005, the Liberals lost a confidence
vote, and snap elections were held on January 23, 2006. This time, the Conservatives won a
plurality, and governed until May 2011 as a minority. Some analysts cautioned that the Tory
victory did not necessarily represent a “paradigm shift” to the right in Canadian politics; they
noted that the Conservative party won only 37% of the popular vote. Because past minority
governments had been relatively short-lived, Harper kept one eye on the next elections. In
addition, Harper relied upon the ad hoc support of Canada’s other three political parties to ensure
passage of the various items on his legislative agenda. Many believe that is why he advocated
fairly centrist policies.9
However, Harper was willing to challenge public opinion over Afghanistan, where the Liberal
government deployed troops in 2002. In 2006, he won a narrow vote in parliament to keep
Canadian troops in Afghanistan for two additional years. Harper initially characterized the
mission as humanitarian in nature and also asserted that it was in Canada’s national interest to
demonstrate its ability to play a leadership role internationally. But as Canadian operations shifted
from peacekeeping to counter-insurgency and casualties mounted, public support diminished.
Canadian troops ended their combat role there in July 2011, but a large contingent has remained
in a training capacity.
Canada’s October 2008 elections did little to change the makeup of parliament. The
Conservatives, who reportedly anticipated a weakening in future support, called the elections in
hopes of capturing a majority. However, the Tories emerged only with a somewhat stronger
plurality.

7 “Welcome To Their Nightmare: Finally, a Reason To Start Paying Attention To Politics Once Again.” Globe and
Mail
. December 8, 2003.
8 “Canada: Martin on the Ropes in Funding Scandal.” Oxford Analytica. February 25, 2004. February 23, 2004.
“Canada’s Premier Acts to Counter Scandal.” By DeNeen L. Brown. Washington Post. February 17, 2004.
9 “Interview: Stephen Harper.” Maclean’s. March 6, 2006. “Conservatives To Govern From Political Center.” Oxford
Analytica
. January 24, 2006. “Harper’s Five Easy Pieces.” Economist. April 8, 2006.
Congressional Research Service
3

Canada-U.S. Relations

In November 2008, a budget bill put forward by the Conservatives precipitated a political crisis;
the spending plan proposed, among other things, the elimination of federal funding for political
parties. The opposition parties, which would have been severely affected by the plan, rebelled and
were poised to vote down the government—ostensibly because Harper had failed to put forward a
stimulus package that would respond to the economic downturn. Harper withdrew his proposals
and, to avoid the no-confidence motion, prorogued (suspended or recessed) the session of
parliament until January 2009; the shutdown was sharply criticized by many.10
During this time, the Liberal party named public intellectual Michael Ignatieff as their new leader.
Some believed that when Parliament returned in January 2009, he would seek to bring down the
government and force new elections. However, he declined to do so, reportedly choosing instead
to support the government’s stimulus program and to consolidate the party’s strength rather than
challenge the Conservatives immediately.11
In the fall of 2009, many believed the Harper government might face a no-confidence vote in
parliament, particularly when public criticism was touched off by questions over how
forthcoming the government had been during inquiries over official knowledge about the turnover
by the Canadian military to Afghan authorities of prisoners who were subsequently abused and
reportedly tortured. On December 30, 2009, Harper prorogued parliament until early March.
Harper’s spokesperson explained the move as one necessary to give the government the time to
“recalibrate” and “consult” over its budgetary policies. However, other observers argued that
Harper sent the legislature home in order to avoid confrontation over the detainee controversy.
The second prorogation in roughly a year’s time prompted harsh criticism by the opposition
parties, as well as scattered protests around the country.12
However, an uptick in the economy helped Harper, whose party also benefited from a “bounce”
from the success of the February 2010 Vancouver Winter Olympics. In addition, the government’s
handling of aid to Haiti in the wake of the January 2010 earthquake earned praise. On the
negative side of the ledger, Harper was faulted for two seemingly unnecessary prorogations, and
also for not carrying out the institutional changes (including reform of the Senate and of the
electoral process) that he promised during his late 2005 campaign and early in his tenure.
On March 25, 2011, the Conservatives lost a no-confidence vote, presumably over a contempt of
parliament ruling that the government had underestimated the costs of prison construction and of
military fighter aircraft procurement; however, some observers maintain that the budget was the
main point of contention.13
The no-confidence motion prompted Canada’s most recent elections, held on May 2, 2011; it was
the fourth time Canadians had gone to the polls in seven years. But unlike the last three elections,
which returned minority governments, this one resulted in significant changes for all of the
national parties: first of all, the Conservatives managed to capture a comfortable majority of 166

10 “Canadian Leader Shuts Parliament To Avoid No-Confidence Vote, Angering Many.” New York Times. December 6,
2008.
11 “The Liberals Try a New Leader,” The Economist, December 13, 2008.
12 “Harper Goes Prorogue.” The Economist. January 9, 2010. “Improved Poll Numbers Not Enough To Entice Ignatieff
Into Spring Election.” Canadian Press. January 28, 2010. “Conservatives Secure 10-Point Lead: Poll.” National Post.
April 12, 2010. “Stalled Institutional Reform Hurts Harper.” Oxford Analytica. March 9, 2010. “Stimulus Has Boosted
Growth, Harper.” Oxford Analytica. April 14, 2010.
13 “Canada: Country Report.” Economist Intelligence Unit. April, 2011. p. 11.
Congressional Research Service
4

Canada-U.S. Relations

seats in the 308-seat parliament up from 144. In second place was the NDP, which wound up with
103 seats, almost triple the 36 they had held before. The Liberals won just 34 seats, down from
77, making them the third-largest party for the first time in the nation’s history. The separatist
Bloc Québecois (BQ) was reduced from 48 down to just 4 seats—causing it to fall below the
threshold for official party status. Finally, the Green Party managed to win a seat—another first.14
In explaining the results, observers note that many Canadians reportedly had become comfortable
with Harper’s personality and leadership style. In addition, Harper has generally avoided divisive
social issues and has instead succeeded in positioning his party more toward the center—a
technique that had been used by the Liberals between 1993 and 2006. Harper’s trump card,
however, was the economy. Since the mid-1990s, both Liberal and Conservative governments had
run budgetary surpluses, leaving the government in a good position to introduce limited stimulus
measures during the global economic crisis, from which Canada emerged in better shape than
most other developed countries.
Harper struck a conciliatory note on election night, saying “[w]e are intensely aware that we are
and must be the government of all Canadians, including those that did not vote for us.” After five
years of running a minority government, conservatives now had greater latitude to pass the kind
of legislation they wanted to. But observers noted that they still needed to steer somewhat toward
the middle—with an eye toward maintaining control of parliament after the next elections.
The Conservatives pushed several proposals through parliament, including repeal of the Canadian
Firearms Registry, elimination of the government’s role in the Canadian Wheat Board, a
strengthening of the criminal code, and a reduction in election subsidies for political parties.
Following the 2011 census, the government added 30 new seats to the House of Commons
(thereby increasing the number of seats to 338) in order to reflect population changes. The Prime
Minister has also continued to call for reform of the by-appointment Senate. Harper’s government
will also continue to assert its sovereignty in the Arctic, and to promote the production and export
(mainly to the United States) of Alberta’s oil sands petroleum.15 Since the elections, the Harper
government has maintained its focus on fiscal retrenchment, employment, energy, and trade
issues. For example, on October 18, 2013, the government announced that it had concluded a free
trade agreement with the European Union (see below).
In 2012, Ottawa was preoccupied with the so-called “Robocall” controversy. In February 2012—
nine months after the elections—two journalists alleged that campaign operatives for the
Conservatives had sent computer-generated recorded telephone messages to registered opposition
voters, directing them to incorrect polling stations. Elections Canada (the Canadian equivalent of
the Federal Election Commission) investigated the claims, and in May 2013 a federal court ruled
that fraud had been involved in the calls. The controversy, along with other factors, has caused the
Conservatives to slump in the polls. The party’s standing also suffered from an ongoing, high-
profile scandal involving charges of improper usage of official expense accounts by several
Conservative Senators—an activity that also allegedly involved the former chief of staff of the
Prime Minister’s office.16

14 Data from Canadian Parliament’s website, updated August 2011: http://www.parl.gc.ca/Parlinfo/Files/
Parliament.aspx?Item=1924d334-6bd0-4cb3-8793-cee640025ff6&Language=E&MenuID=Lists.Parliament.aspx.
15 “Harper Finally Wins Majority As NDP Surges Into Opposition.” Globe and Mail. May 2, 2011. “A Conversation
With the Prime Minister.” Policy Options. June-July, 2011. p. 6.
16 “Delayed Reaction.” The Economist. March 3, 2012. “Tories Accused of Minimizing Robo-calls Controversy.”
(continued...)
Congressional Research Service
5

Canada-U.S. Relations

In April 2013, the Liberals elected Justin Trudeau, son of former Prime Minister Pierre Trudeau,
as party leader. He has proven to be popular, leading Harper in an August 2013 poll on all but
economic issues.17 However, although the Conservatives currently trail the Liberals in public
opinion surveys, the next elections are not scheduled to be held until the fall of 2015. A continued
strong economy could boost Harper if voters lean toward pocketbook issues. In addition, some
observers argue that Canadians are weary of elections; at 61.4%, turnout for the last vote was the
third lowest in history. Voter participation may therefore play a key role in the next election.
National Unity
For more than four decades, an emotional debate has waxed and waned over the status of French-
speaking Québec, Canada’s second-largest province geographically and home to about one-
quarter of its population. Many Québécois are concerned that their language and culture will be
overwhelmed by the rest of English-speaking Canada. Some believe that their society may only
be preserved if Québec separates from the rest of Canada and forms an independent country. A
1980 provincial referendum on “sovereignty-association” for Québec was defeated 60%-40%.
In October 1994 elections, after the provincial Liberals had governed Québec for several years,
the province once more elected the separatist Parti Québécois (PQ). The victorious PQ held a
referendum on sovereignty on October 30, 1995. Québeckers essentially voted on whether they
wished to continue to remain a part of Canada, or strike off on their own. The vote went 50.6% to
49.4% in favor of keeping the country whole. The wafer-thin margin shocked federalists and
separatists alike. Nearly two decades later, the country is still affected by the impact of what has
been called a “near-death experience.”
In 2003, Québec voters turned out the PQ and replaced them with the Liberals, led by Jean
Charest. A former leader of the Progressive Conservatives at the national level, Charest was a
committed federalist, which ruled out another sovereignty referendum during his tenure. In the
early part of his first term, Charest lost some support when he attempted to reduce the economic
role of the provincial government; those efforts prompted strong protests from the powerful
public service unions. Some Québec-watchers asserted that Charest learned from this experience
and changed his tactics. In elections held in 2007 and 2008, the Liberals won a plurality, and a
majority, respectively; Charest retained his spot as premier. However, in September 3, 2012,
provincial elections the PQ returned to power as a minority government, under the leadership of
Pauline Marois.18 In a recent CROP poll taken in Québec, 44% of those surveyed said they
favored independence for the province, while 56% were opposed.19

(...continued)
Globe and Mail. March 30, 2012. “Numbers Add Up To Trouble For Tories.” National Post. March 23, 2012.
“Systemic Approach to Voter Interference ‘Extremely Worrisome’: Trudeau.” The Canadian Press. May 24, 2013.
“Robocall Court Ruling ‘Should Bolster’ Reform; Former Elections Canada Chief.” The Canadian Press. May 25,
2013. “Was There More to 2013 Than the Senate Scandal? Not Much.” Toronto Star. December 23, 2013.
17 Trudeau, Harper Seen as Polar Opposites Politically, Mulcair Squeezed: Poll. Canadian Press. August 29, 2013.
18 “’The Nationalists Are on the Rise’: Pollster; Forum Research Survey; PQ Would Romp To Landslide Victory If
Provincial Election Were Held Today” Montreal Gazette. March 27, 2012. “The Separatists Are Back.” The Economist.
September 8, 2012.
19 Poll Shows Growing Support for Parti Quebecois. CTV News. December 11, 2013.
Congressional Research Service
6

Canada-U.S. Relations

Since the debate began in the 1960s, the United States government has assiduously sought to
remain officially neutral on the issue of Québec, continually repeating the three-point “mantra”
that the United States enjoys excellent relations with a strong and united Canada; that the Québec
question is an internal issue that is for Canadians to decide; and that the United States does not
wish to interfere with Canada’s domestic matters. However, some analysts detected a slight “tilt”
on the part of Clinton Administration toward the federalists during the 1995 referendum
campaign. If, at some future date, Québec eventually does leave the confederation, the U.S.
government would be faced with difficult political and economic questions.
Foreign and Security Policy Issues
The Canadian Ministry of Foreign Affairs and International Trade lists several policy priorities
for the period 2013-2014:
• implementing the Global Commerce Strategy, with a special focus on emerging
markets (including China, India, and Brazil);
• contributing to effective international governance and security, and to the
promotion of human rights;
• further strengthening of ties with the United States through cooperation in the
areas of border management, trade, investment, energy (particularly with regard
to oil sands), and the environment; and enhancing Canada’s involvement in the
hemisphere;
• increasing engagement, both political and commercial, in Asia;
• enhancing the role of Canada’s consular services in ensuring the safety of
Canadians abroad;
• exercising sovereignty in the Arctic; and
• playing a leading role in international activities to fight poverty and provide
humanitarian assistance, focusing particularly on food security, the well-beign of
children, sustainable growth, and private sector partnerships.20
As a middle power (the population in July 2013 was just under 35 million), Canada has exercised
a somewhat disproportionate influence in world affairs, chiefly through its active participation in
international organizations, including the G-8, G-20, and the Asia-Pacific Economic Cooperation
forum. From 1998 to 2006, Canadian diplomat Louise Frechette served as Deputy Secretary
General of the United Nations, and from 1996 to 2006 Canadian Donald Johnston was Secretary
General of the Organization for Economic Cooperation and Development. The president of the
International Criminal Court from 2003 to 2009 was Judge Philippe Kirsch from Canada. The
first head of the U.N. War Crimes Tribunal was Canadian Louise Arbour.
Canadian military officers have also been tapped for leadership positions in international
organizations and coalitions. In June 2005, Air Force General Ray Henault was named head of

20 Priorities for 2013-2014. Foreign Affairs, Trade, and Development Canada. Modified June 25, 2013.
http://www.international.gc.ca/department-ministere/priorities-priorites.aspx?view=d.
Congressional Research Service
7

Canada-U.S. Relations

NATO’s military committee, a post he held until 2008. And in 2011, Lieutenant-General Charles
Bouchard was head of the allied military operations in Libya.21
Canadians are proud of the active role played by their military as international peacekeepers.
Since the United Nations first dispatched an armed peacekeeping contingent to help defuse the
Suez Crisis in 1956, Canada has participated in numerous U.N. peacekeeping operations, from
Cyprus and the Sinai, to Bosnia, Rwanda, Somalia, and Afghanistan. As of December 2013, more
than 625 Canadian Forces personnel were participating in international operations in Afghanistan,
the Caribbean, the Middle East, and Africa. An autumn 2010 survey showed that 52% of
Canadians “believe traditional peacekeeping is the proper role for our men and women in
uniform.”22
As with other countries in the 1990s, Canada’s military was subject to dual pressures. In Ottawa’s
view, the collapse of the Soviet Union and the Warsaw Pact reduced the military threat, making it
more difficult for the government to justify sustaining historic spending levels on defense.
Leaders believed that the country’s large debt early in that decade necessitated funding cutbacks
in most areas of government, including defense. However, relative to its NATO allies, Canada had
devoted only a modest share, about 2% of GDP, of its budget to defense spending during the
1980s and 1990s. That percentage declined even further, from 2.01% in 1990 to 1.1% in 2005;
among the 26 NATO members, only Luxembourg and Iceland (which has no armed forces) spent
a lower percentage. Canada’s meager military budget irked some within the alliance, particularly
the United States.23
After the round of cutbacks in the 1990s, the number of active personnel in Canada’s armed
forces tumbled from 87,000 in 1989 to 52,000 in 2004, the 56th largest in the world. The Canadian
forces also were strapped for resources to replace aging equipment. This trend disturbed many,
and there were numerous warnings published. In March 2002, a Canadian Senate committee
called for increased defense spending to counter the threat of international terrorism; it also
recommended that personnel levels be increased and that more resources be provided to the
Canadian Security Intelligence Service. A November 2002 Senate report recommended boosting
troop levels to 75,000 and restructuring the armed forces. A brace of studies in the fall of 2003
likewise called for changes in force restructure and procurement practices and for increases in
manpower and budgets. A news report characterized one of the studies as concluding that
“Canadian Forces are teetering on the edge of irrelevance.” In September 2005 the Canadian
Senate published yet another report, which called for a doubling of spending on defense.24
Both Liberal and Conservative Canadian governments appear to have heeded these messages. As
of March 2013, Canada’s armed forces had increased to approximately 66,000 regular force
members and 31,000 reserves. Canada’s defense spending increased during the second half of the
last decade; the budget tabled in February 2005 contained the largest military spending increase
in 20 years: C$12.8 billion—roughly equal to the entire 2005 military budget—spread over five

21 “Canada Moving Into Role As Leader Overseas.” Vancouver Sun. March 28, 2011.
22 Canada and International Peacekeeping. By Joseph T. Jockel. Center for Strategic and International
Studies/Canadian Institute of Strategic Studies. Washington, DC, 1994. Canadian Operations. Canadian National
Defence web site. Updated December 19, 2013. http://www.forces.gc.ca/en/operations-abroad-current/index.page.
“Canada Must Stand On Guard.” Winnipeg Free Press. October 27, 2010.
23 “Spend More On Military, U.S. Envoy Urges Ottawa.” Toronto Star. February 25, 2004.
24 “Armed Forces Hobbled, Report Says.” By Daniel LeBlanc. Globe and Mail. December 3, 2003. “Senators Sounding
Alarm On Defence.” The Gazette. October 3, 2005.
Congressional Research Service
8

Canada-U.S. Relations

years. The 2007 budget confirmed the previous year’s spending increase, and the 2008 budget
sought to ensure continuity through the Canada First Defence Strategy, which provided for yearly
increases of 2% beginning in 2011-2012. The government budget for the armed forces in 2008-
2012 averaged around C$20 billion annually. However, due to budget retrenchment, military
spending over the next few years is expected to remain fairly flat. In addition, Canada unilaterally
halted its contribution to two NATO air surveillance programs, and may cancel, delay, or reduce
its planned purchase of F-35 fighter aircraft (see below). Jane’s estimates Canada’s defense
spending at 1.053% of GDP for 2013, and forecasts it to fall to 0.884% of GDP by 2017, as GDP
grows and defense budgets stay relatively unchanged.25
U.S.-Canada Foreign and Security Policy Issues
For a variety of practical and historical reasons, Canada’s relations with the United States have
always been a key priority. The two countries share a 5,500-mile border, a common language, and
cultural similarities, as well as vital interests in the international realm. Trade between the two
countries well exceeds $1 billion per day; however, Canada’s dependence on exports to the
United States has prompted several governments to attempt to expand and diversify its
international commerce.
According to the U.S. State Department, “U.S. defense arrangements with Canada are more
extensive than with any other country.” Former Canadian Ambassador to the United States
Michael Kergin referred to the defense relationship as being “intermestic” in nature.26
Over the past century, U.S.-Canadian defense cooperation has been close. In 1940, President
Franklin D. Roosevelt and Prime Minister McKenzie King established the Permanent Joint Board
on Defense, which formalized bilateral consultation on military matters and is still in operation.
In 1949, the two countries were founding members of NATO. During peacetime, military
cooperation has occurred chiefly in the context of bi- and multinational organizations.
NORAD
In 1958, Canada and the United States signed the North American Aerospace Defense Command
(NORAD) agreement. The continental air defense pact monitors U.S. and Canadian airspace and
encourages joint efforts in aerospace technologies. In the wake of the September 11 terrorist
attacks, there were discussions of deepening military cooperation along the NORAD model, in
the context of the newly created U.S. Northern Command, to include land and sea forces. But
some Canadians were concerned that such a move might impinge upon Canada’s sovereignty, and
in August 2002, the Canadian government announced that its land and sea forces would not be
participating in the command. In December 2002, however, the two countries signed a new
accord creating a binational planning group (BPG) based at NORAD to coordinate responses to
terrorist attacks and other crises. The BPG issued its final report in March 2006; the panel put
forward numerous recommendations, including that the two countries develop a common security
vision and improve interoperability through joint military planning, training, exercises, and

25 The Military Balance, 2013. International Institute for Strategic Studies. Defence and Budget 2005—Highlights.
DND website. http://www.forces.gc.ca/site/reports/budget05/summ05_e.asp. IHS Jane’s Sentinel Security Assessment
– North America. Defense Budget Overview. Updated November 1, 2013.
26 United States Department of State. Bureau of Western Hemisphere Affairs. U.S. Relations with Canada. August 23,
2013. “Remarks to the Center for Strategic and International Studies.” February 28, 2005.
Congressional Research Service
9

Canada-U.S. Relations

information sharing. In August 2004, Canada and the United States amended NORAD to permit it
to share information on incoming ballistic missiles. Ottawa and Washington also agreed to
expand the scope of the agreement to encompass nautical surveillance.
In February 2008, the commanding generals of U.S. Northern Command and of its Canadian
counterpart, Canada Command, signed a binational Civil Assistance Plan. Under the plan, the
armed forces of each country, after appropriate consultation with civilian authorities on both sides
of the border, may come to the support of the other country’s military in the event of civil
emergencies such as floods, earthquakes, or the effects of a terrorist attack. In May 2011,
NORAD leaders noted that changes in the Arctic—specifically, ice melt and commercial
development—would likely lead to a need for increased activity in the high north.27
Missile Defense
Ottawa long debated whether it should participate in the U.S. ballistic missile defense (BMD)
system. Some analysts expressed reservations over the plan, in the belief that it might spark a new
arms race, while others reportedly preferred to keep Canada’s options open. Parliament held
hearings on the issue in 2003, but no official policy was enunciated. In May 2003, Canada said
that it would enter into discussions with the United States; a Canadian military affairs journalist
described Canada’s likely negotiating goals: “Canada wants the anti-missile shield run by
NORAD—in effect, giving Canada equal status in protecting North America and a finger on the
trigger. Ottawa wants a share of the industrial benefits and access to secret technologies, all while
paying little or nothing. And it continues to insist that space not be weaponized.”28
On February 24, 2005, the Canadian government said that it would not participate in BMD.
However, Canada’s ambassador to the United States had pointed out earlier that the two countries
had already agreed to allow NORAD to share information with U.S. BMD commands. U.S.
officials expressed puzzlement and disappointment with the announcement, noting that Canada
had sent signals that it would likely sign on. Polls showed that a majority of Canadians,
particularly Québeckers, opposed BMD, leading some analysts to suggest that domestic political
pressures may have guided the decision. In late February 2006, Canada’s Defense Minister said
that the Harper government likely would review the missile defense issue if asked to do so by
Washington. Any final decision on participation, he added, would be subject to a parliamentary
vote. In April 2008, U.S. Air Force General Gene Renuart, head of NORAD, was quoted as
having said that all incoming intelligence concerning missile threats was shared with Canada.29
Nevertheless, some Canadian policy makers continue to make the case for their country
participating in the U.S. ballistic missile defense program.30

27 “Continental Divides.” By Sydney J. Freedberg, Jr. National Journal. March 23, 2002. “Leading academics Examine
Risks Inherent In Closer Military Co-operation With the United States.” Canada NewsWire. April 26, 2002. “Canada
Won’t Join Norad-Like Land-Sea Force. By Rick Mofina.” Ottawa Citizen. August 15, 2002. September 12, 2005.
Binational Planning Group. Final Report. March 13, 2006. http://www.canadianally.com/BPGFinalReport.pdf U.S.
Northern Command website: http://www.northcom.mil/news/2008/021408.html “NORAD Commanders Say Melting
Ice and Energy Development Will Make Arctic Busier,” Canadian Press. May 7, 2011.
28 “Shoot Down Defence Dreamers.” By Paul Koring. Globe and Mail. June 25, 2003.
29 “Canada and the U.S. Missile Defense System.” Dwight M. Mason. CSIS Hemisphere Focus. January 9, 2004.
“Martin and the Politics of Missile Defense.” Globe and Mail. May 1, 2004. “Martin’s Move Irritates U.S.” By Sean
Gordon. Toronto Star. February 24, 2005. “Minister Backs U.S. Missile Plan.” Toronto Star. February 24, 2006.
“Canada Kept In Loop At NORAD About All Missile Threats.” Ottawa Citizen. April 10, 2008.
30 See, for example: “Colin Kenny: The Case for Missile Defense. National Post. September 16, 2013.
Congressional Research Service
10

Canada-U.S. Relations

Joint Strike Fighter
In February 2002, Canada agreed to participate in the further development of the U.S.-led
multinational Joint Strike Fighter (JSF, or F-35) program, contributing $150 million over a 10-
year period. In December 2006, it was announced that the Canadian government had committed
additional funding for the development of the aircraft. Canada has reportedly agreed to consider
purchasing the new fighters to replace its own fleet of CF-18 planes when they are retired in
2017, and has earmarked nearly C$4 billion for the new planes. In June 2007, the Department of
National Defense announced plans to form a new office to evaluate Canada’s future air defense
requirements. Canada appeared to reap rewards from its participation; as of June 2007, Canadian
firms had won 150 JSF contracts worth about $160 million. In addition, Canadian defense
companies stand to benefit from the Pentagon’s plans to purchase additional F-35s. In July 2010,
Defense Minister MacKay confirmed that the government planned to spend C$9 billion on the
acquisition of 65 F-35 aircraft. The opposition Liberals criticized the decision, arguing that it
should have been reviewed by parliament first, while the New Democrats maintained that the
radar-evading F-35 may be more airplane than Canada needs. The media have also faulted the
purchase, pointing to large cost overruns. During a January 2011 visit to Canada, former U.S.
Defense Secretary Robert Gates urged Canada to proceed with its planned procurement of the
aircraft. However, in early 2012, it was reported that the government was contemplating delay or
cancellation of the purchase. Associate Defense Minister Julian Fantino told a parliamentary
defense committee that “we have not as yet discounted the possibility, of course, [of] backing out
of the program.” He later clarified that the government might purchase fewer than 65 of the deep
strike fighters, and that “this government will adapt our plans as necessary to maintain this
acquisition within the existing budget.” In December 2013, it was announced that Canadian firms
could garner nearly $10 billion in contracts over the life of the F-35 program.31
NATO
According to Canada’s Foreign Affairs Ministry, “Canada’s priority for NATO is to ensure that
the Alliance remains modern, flexible and agile and thus able to face the threats of today and
those arising in the future. This goal drives all of Canada’s efforts on NATO transformation,
reform and partnerships with non-NATO countries.”32 According to IHS Jane’s, “it is clear that
the Harper government sees Canada’s role in NATO as central to its foreign and security
policy.”33
Canada has been engaged in the debate over NATO’s future. It supported the 1999 and 2004
rounds of enlargement and announced that it would participate in the NATO Response Force,
which the alliance agreed to at its November 2002 Prague summit. At the April 2008 Bucharest

31 “Canadian Firms Big Winners In U.S. Jet Project.” National Post. April 21, 2006. “Canada Commits Up To $500
Million to the Development of CF-18 Replacement.” The Canadian Press. December 13, 2006. “New Office To Assess
Canada’s Fighter Needs.” Defense News. June 18, 2007. Forces Tag $3.8B To Buy Advanced Jets. Ottawa Citizen.
June 27, 2007. “Canada’s Defense Chief Rejects Criticism of F-35 Jet,” New York Times. July 17, 2010. “Costs Rocket
for Canada’s Jet Fighter,” Toronto Star. May 20, 2011. “Canada’s F-35s: Engines Not Included” Ottawa Citizen. April
17, 2011. “U.S. Calls On Canada to Stick With F-35,” Globe and Mail. January 27, 2011. “Ottawa Having Second
Thoughts on F-35 Jets.” Globe and Mail. March 14, 2012. “Tories Say F-35 Jets Will Come, Eventually.” Toronto
Star.
March 17, 2012. “Stealth-Fighter-Benefits.” The Canadian Press. December 10, 2013.
32 Canada in NATO. Foreign Affairs, Trade and Development Canada web site. Updated April 29, 2013.
http://www.international.gc.ca/nato-otan/index.aspx?lang=eng.
33 Canada: External Affairs. Jane’s Sentinel Security Assessment – North America. Accessed December 20, 2013.
Congressional Research Service
11

Canada-U.S. Relations

summit, Canada endorsed the addition of Croatia, Albania, and Macedonia; in addition it
supported the proposal to offer Membership Action Plans to Georgia and Ukraine. Finally, as
noted above, Ottawa has maintained troops in Afghanistan since 2002, and its military leaders
have served in a command capacity. In April 2003, then Foreign Minister Graham, along with the
Dutch and German governments, requested that NATO take over command of ISAF.34 In a 2009
speech in the UK, Canadian Defense Minister Peter MacKay cautioned that NATO was being
tested in the crucible of Afghanistan, and urged more equitable burden sharing.35
Although it has no troops stationed in allied member states in Europe, Canada in recent years
contributed several hundred troops to the NATO-led Stabilization Force (SFOR) in the Balkans.
Canada also supplied 200 troops to NATO’s mission in Macedonia. Canada cooperated “wing-to-
wing” with the United States in Operation Allied Force, the NATO campaign of air strikes against
targets in Serbia and Kosovo, contributing 18 CF-18 fighter aircraft and providing two rotations
of approximately 1,500 troops each to KFOR (Kosovo). In addition Canada has supported non-
NATO peacekeeping operations; it provided 600 personnel to the initial U.N. peacekeeping
mission in East Timor and also sent 500 troops to maintain stability in Haiti. In 2011, former
Secretary of Defense Robert Gates lauded Canada for its contributions to the alliance missions in
Afghanistan and Libya.36
In March 2012, however, it was reported that, as a part of its wide-ranging budget retrenchment
efforts, the Canadian government had notified the alliance that it would halt its participation in
the NATO Airborne Warning and Control System (AWACS) and the Alliance Ground
Surveillance (AGS) program; the government estimates savings at C$90 million.37
Afghanistan
Canada was one of the first countries to join the military operation in Afghanistan; its
participation dates back to October 2001. Along with British, Dutch, Danish, and U.S. troops,
Canadian forces served on the front line in the combat operations to counter attacks by al Qaeda
and Taliban fighters. Much of the time, Canada maintained approximately 2,800 troops in the
country. A total of 158 Canadians, including one diplomat, have died in Afghanistan. In 2005,
Canada launched a Provincial Reconstruction Team mission in Kandahar. Canada ended its
combat role in Afghanistan in July 2011; however, a sizeable contingent or troops (950 as of
October 2013) will remain until 2014 to help train Afghan national security forces. Ottawa also
has provided considerable humanitarian and reconstruction aid to Afghanistan; in 2011-2012, the
Canadian International Development Agency (CIDA) disbursed C$127.4 million in development
and humanitarian assistance.38

34 “NATO Umbrella Sought.” By Allan Thompson. Toronto Star. April 4, 2003. “NATO Sees Key Role For Canada In
Afghan Security.” Reuters. May 6, 2003. CRS interview of Canadian government official, May 7, 2008.
35 NATO’s Future At Stake In Afghanistan: MacKay. Ottawa Citizen. February 16, 2009.
36 Current Operations. Canadian Expeditionary Force Command website. Updated April, 2009. http://www.comfec-
cefcom.forces.gc.ca/pa-ap/ops/index-eng.asp. “Canada Punches Above Its Weight In NATO: U.S. Defence Secretary,”
Montreal Gazette. June 11, 2011.
37 “Canada Bails Out of NATO Surveillance Programs.” National Post. March 19, 2012.
38 DND website: http://www.forces.gc.ca/en/operations-abroad-current/op-attention.page?. Afghanistan: Overview.
Government of Canada website. updated July 9, 2013. http://www.acdi-cida.gc.ca/acdi-cida/ACDI-CIDA.nsf/En/JUD-
129153625-S6T.
Congressional Research Service
12

Canada-U.S. Relations

Libya
In March 2011, the Harper government committed approximately 650 troops, including air, sea,
and land forces, to assisting the U.N.-sanctioned NATO mission to protect the civilian population
in Libya. Canadian CF-18 fighters patrolled the no-fly zone and conducted a disproportionately
large number of air strikes, and the frigate HMCS Charlottetown came under fire from Qadhafi
loyalists, but suffered neither damage nor casualties. In late March, a Canadian general was
appointed commander of NATO military operations in Libya. Some analysts argued that Canada
took part in the mission in order to demonstrate its continuing commitment to the North Atlantic
alliance, and to reinforce Canada’s traditional leadership role in U.N. peacekeeping missions.
According to public opinion polls, there was strong public support for Canada’s participation.39
Haiti
Canada and the United States have worked closely together over the past 17 years with the U.N.
mission in Haiti, where a contingent of the Canadian armed forces, along with members of the
Royal Canadian Mounted Police, took the reins from departing U.S. forces who had helped
restore the democratically elected government in Haiti in 1994. In 2004, after the Aristide
government stepped down in the face of armed rebellion, Canada joined the United States and
France in providing peacekeepers to the U.N.-authorized Multinational Interim Force sent to the
troubled island; Canada dispatched helicopters and nearly 500 troops. In February 2008, then-
Canadian Foreign Minister Bernier traveled to Haiti, where he announced that Ottawa’s total
multiyear aid package would be raised to C$555 million. In the wake of the turmoil over food
shortages, he called for international donors to harmonize their assistance during an April 2008
donor conference. Haiti is the second-largest recipient (after Afghanistan) of Canadian
development assistance. Canada’s former Governor General, Michaëlle Jean, who was born in
Haiti, traveled to the island in January 2009; she visited several development projects, and met
with government and civil society leaders. Jean returned to visit following the January 12, 2010,
earthquake that devastated the country. At an international donor conference held at the United
Nations, Canada made a two-year pledge of C$400 million in humanitarian and reconstruction
assistance, making it the largest per capita provider of aid to Haiti. Canada employs a “whole-of-
government” approach in supporting Haiti, involving the Defense and Foreign Affairs
Departments, the Canadian Border Services Agency, the Royal Canadian Mounted Police, and
Correctional Services Canada. In June 2013, the Harper government announced that it would
send 34 troops to assist in stabilizing Haiti before the hurricane season, and in August, Canada’s
Minister of International Development visited the island nation.40

39 “Dispatch: Canadian Support For the Libya Intervention.” Stratfor. March 28, 2011. “Libya: New Development.”
Foreign Affairs and International Trade Canada web site. September 1, 2011. “Canada: Country Report.” Economist
Intelligence Unit.
April, 2011. “Canada Contributed a Disproportionate Amount To Libya Air Strikes: Sources.”
National Post. August 25, 2011.
40 “Canada Pledges $555 Million In Aid To Haiti.” Reuters. February 24, 2008. Canada Participates In Harmonization
Efforts In Haiti. News Release. Foreign Affairs and International Trade Canada. April 23, 2008. ‘I Can Feel the
Strength of the People,’ Jean Says. National Post. March 30, 2010. Canada Pledges $400 million To Haiti. Ottawa
Citizen
. April 1, 2010. Canada’s Role In Haiti. Globe and Mail. April 3, 2010. Government of Canada web site, last
modified March 12, 2013. http://www.canadainternational.gc.ca/haiti/engagement/whole_of_government-
pangouvernementale.aspx?view=d. Minister Paradis Visits Haiti to Assess Progress and Challenge. Canadian Foreign
Affairs Ministry web site. August 28, 2013. http://www.acdi-cida.gc.ca/acdi-cida/acdi-cida.nsf/eng/ANN-828134040-
NQY.
Congressional Research Service
13

Canada-U.S. Relations

Iraq
Canada was disinclined to expand the so-called war on terrorism beyond Afghanistan to Iraq. In
September 2002, during a meeting in Detroit with President Bush, Prime Minister Chrétien
reaffirmed Canada’s preference for a U.N. mandate, a stance that strongly reflected Canadian
public opinion. Washington later requested of Ottawa specific military commitments in the event
of a conflict with Iraq, but no definitive answer was given. Over the following months, the
government’s statements on Iraq were characterized by the media as imprecise and at times
contradictory, an apparent attempt to keep options open. But in the House of Commons on March
18, 2003, Chrétien stated unequivocally that “Canada will not participate.” The Bush
Administration expressed disappointment with the decision.41
Washington subsequently requested that Canada assist in the reconstruction of Iraq by sending
troops or military police. Ottawa responded by offering 150 members of its Disaster Assistance
Response Team, a non-traditional military unit consisting of security, engineering, and medical
personnel. Canada also provided funding in a number of areas, including humanitarian and
reconstruction aid, support for elections, and police training. The Canadian International
Development Agency pledged C$300 million (2003-2010) in assistance to Iraq. In January 2004,
Canada announced that it would cancel Iraq’s $564 million debt.42
Cuba
Cuba has been another issue where Canada and the United States have not always seen eye-to-
eye. For decades, Canada has maintained normal diplomatic relations with Cuba, and has
maintained relatively extensive business links: Canada is Cuba’s third-largest trading partner and
its number one source of tourists. Because of this ongoing commercial relationship, Canadian
government officials publicly criticized a U.S. law (the Cuban Liberty and Democratic Solidarity
Act, P.L. 104-114) that seeks to apply indirect pressure on the Castro regime by permitting Cuban
Americans to file lawsuits against foreign firms that use Cuban property that was expropriated by
the Castro regime. U.S. supporters of the Cuba embargo have been critical of Canadian mining
companies and hotel chains that do business with the island nation. Canadians, who are sensitive
to being perceived as America’s “junior partner,” object that the law amounts to the United States
forcing its foreign and commercial policies upon other countries. In 2003, after the Castro
government handed down draconian prison terms to 75 political dissidents, Ottawa expressed
official disapproval. The transfer of Cuba’s presidency from Fidel to Raul Castro (temporary in
2006, permanent in 2008) prompted vigorous debate in the Canadian press over what policy
Ottawa should adopt toward Cuba.43 In April 2009, the Obama Administration announced that it
would ease restrictions on family travel and remittances to Cuba and allow greater
telecommunications links with Cuba. The decision was welcomed by Ottawa; Peter Kent,

41 “Well, Maybe ... .” Economist. September 28, 2002. “PM Scolds McCallum On Canada’s Role In Iraq.” By Shawn
McCarthy and Daniel Leblanc. Globe and Mail. January 16, 2003. “Bravos Greet Chrétien.” By Tim Harper. Toronto
Star
. March 18, 2003.
42 “Iraq: Canada’s Commitment.” Canadian International Development Agency web page: http://www.acdi-cida.gc.ca/
iraq#1. Updated May 24, 2007.
43 See, for example: “Castro’s Resignation Unlikely To Change Canadian-Cuban Relations, Experts Say.” The
Canadian Press
. February 19, 2008. “Don’t Support Castro’s Island Prison.” National Post. February 19, 2008. “With
Fidel Castro Gone, U.S. Hawks Will Look North.” Toronto Star. February 20, 2008. “The Autumn Of the Patriarch.”
Ottawa Citizen. February 23, 2008.
Congressional Research Service
14

Canada-U.S. Relations

Minister of State of Foreign Affairs for the Americas, commented that “the election of the Obama
Administration has given real momentum to the sort of change that Canada has been encouraging
for a long time.” A planned trip by Kent to Havana in May 2009 was cancelled, reportedly
because Kent had said that he planned to address the human rights issue during his trip, and
because Prime Minister Harper had referred to himself as an “anti-communist conservative.” The
trip was re-scheduled, and Kent traveled to Cuba later in the year. In mid-2010, relations were
strained over the case of a teenaged Canadian traveler detained for three months in Cuba. The 19-
year-old, who suffered injuries when the vehicle he was driving was sideswiped by a pickup
truck, was held by Cuban authorities under threat of a jail sentence. He was allowed to return in
early August. In February 2013, Canadian Foreign Minister Baird met with his Cuban counterpart
to discuss bilateral cooperation on trade, investment, and tourism—in 2012, Canada was the
source of an estimated 1 million tourist trips to Cuba.44
China
Relations between Canada and China were somewhat cool during the early years of the Harper
government, when Ottawa criticized Beijing’s human rights practices and conferred honorary
citizenship on the Dalai Lama.45 Observers argue that a turning point occurred in late 2009, when
Prime Minister Harper, reportedly responding to the Canadian business community, made his first
trip to China; Premier Wen Jiabao publicly chided the Canadian Premier for not having visited
sooner. Today, the Canadian Government’s web site characterizes bilateral cooperation as
“strong,” noting that several ministries “have productive cooperation programs and memoranda
of understanding with their Chinese counterparts, and hold regular exchanges ... .” During a July
2011 visit to Beijing, Foreign Minister John Baird declared that relations between the two
countries had “entered a new era,” and described China as a “friend” and “ally.” Prime Minister
Harper traveled to China a second time in February 2012. During the visit, he signed 20
commercial deals worth C$3 billion, as well as a declaration of intent on a long-pending
investment protection agreement. Foreign Minister Baird returned to China in July and October
2013. In November 2013, the Canadian media noted that Prime Minister Harper had yet to meet
with President Xi Jinping, and speculated that various trade and human rights issues might have
created strains in the bilateral relationship.46
Border Issues
Even before the September 11, 2001 (9/11), Al Qaeda attacks on New York and Washington, DC,
U.S.-Canadian border security was a key issue for both countries. Border security first became a
matter of urgent concern in December 1999, when U.S. officials, acting on a tip from Canadian

44 “Unreformed Tyranny.” Globe and Mail. November 23, 2009. “Cuba To Give Canada Expanded Air Access With
Island To Boost Tourism.” Canadian Press. January 15, 2010. “Cuba’s Tainted Image,” Toronto Star. August 4, 2010.
“Canada, Cuba Look to More Economic Cooperation.” Agence France Presse. February 16, 2013.
45 Canada: Country Report. Economist Intelligence Unit. August, 2011. p. 11. Canada/China: Harper Trip Raises Hoes
For Relations. Oxford Analytica. December 2, 2009.
46 Canada—China. Government of Canada web site: http://www.canadainternational.gc.ca/china-
chine/bilateral_relations_bilaterales/index.aspx?lang=eng&menu_id=2 Accessed December 20, 2013. ’New Era’ For
Canada and China, Baird Says. National Post. July 21, 2011. Baird Embraces China As ‘Friend.’ Globe and Mail. July
19, 2011. “Harper’s China Visit Ends with Panda Pact.” CBC News. February 11, 2012.
http://www.cbc.ca/news/world/story/2012/02/11/harper-china-saturday.html “PM Yet To Meet China’s President.”
Ottawa Citizen. November 20, 2013.
Congressional Research Service
15

Canada-U.S. Relations

authorities, stopped Ahmed Ressam at the border as he was attempting to smuggle explosives into
the United States. It was later discovered that Ressam had planned to bomb the Los Angeles
airport, and that he had received terrorist training from Al-Qaeda in Afghanistan. Despite the fact
that none of the 9/11 hijackers entered from Canada, the 2001 attacks sparked renewed debate
over Canadian laws regarding the treatment of immigrants seeking refugee status or political
asylum.47 By February 2002, Ottawa had taken “steps to tighten immigration and refugee
policies, including more rigorous screening of people who claim refugee status and stepped up
detentions and deportations of claimants suspected of being security risks.”48
Skeptics question whether determined terrorists and criminals can reliably be prevented from
traversing the two countries’ 5,500-mile border. And efforts to strengthen border security must be
balanced against competing pressures to facilitate legal travel and trade by preventing long delays
at border crossings. About 80% of U.S.-Canada merchandise trade crosses the border by truck;
and many of these shipments are “just-in-time” deliveries, so that crossing delays can seriously
disrupt manufacturing in both countries.49 International tourism is also a key export for both
countries, and each represents the other’s number one tourism market.50 Thus, both sides have
strong incentives to strengthen security, and to keep goods and travel flowing.
Particularly since the 9/11 attacks, Ottawa and Washington have taken numerous steps to improve
border security, including through a series of bilateral agreements. In December 2001, they signed
the Smart Border declaration that aimed at improving security and efficiency at border crossings.
The agreement laid out a 30-point (since increased to 32-point) list of areas of joint activity
covering air, land, and sea crossings, ranging from pre-clearance of goods and people, to
biometric identifiers, to infrastructure improvements. In December 2002, the two nations signed
the Safe Third Country agreement, intended to permit coordination of refugee and asylum policy.
The two countries also cooperate extensively on law-enforcement activities around the border.
In February 2011, President Obama and Prime Minister Harper signed the Beyond the Border
declaration, which described their shared visions for a common approach to perimeter security
and economic competitiveness. The 2011 agreement focuses on information sharing and joint
threat assessments to develop a common and early understanding of the threat environment;
infrastructure investment to accommodate continued growth in legal commercial and passenger
traffic; integrated cross-border law enforcement operations; and integrated steps to strengthen
shared cyber-infrastructure.
This vision was fleshed out by the Beyond the Border Action Plan, released during a meeting of
the two leaders on December 7, 2011. It set out goals and progress metrics related to:
• harmonized cargo screening under the “cleared-once, accepted twice” principle,

47 In April 2009, U.S. Department of Homeland Security Secretary Janet Napolitano raised concerns when she averred
that some of the 9/11 terrorists and crossed over from Canada. “Napolitano’s Comments about Canada’s Border Spark
Diplomatic Kerfuffle.” The Canadian Press. April 21, 2009.
48 “Al-Qaida In Canada?” CBSNEWS.com. April 25, 2002. “Canada Alters Security Policy To Ease Concerns of U.S.”
By Clifford Krauss. New York Times. February 18, 2002.
49 Canadian Government Fact Sheet: A Unique and Vital Relationship, modified, June 2, 2011,
http://www.canadainternational.gc.ca/can-am/offices-bureaux/welcome-bienvenue.aspx?lang=eng&view=d.
50 U.S. Department of Commerce, International Trade Administration, Canadian Travel to the United States 2011,
Washington, D.C., December 2012; Canadian Tourism Commission, Delivering Value for Canada’s Tourism
Businesses Through Innovation and Efficiency,
Vancouver, B.C. 2013.
Congressional Research Service
16

Canada-U.S. Relations

• joint inventories and gap analysis related to travel and trade threat assessments
and border surveillance,
• automated biographic and biometric data sharing,
• an integrated entry-exit system,
• enhanced pre-clearance of goods and travelers, and
• expansion of interoperability among law enforcement and deployment of cross-
designated personnel.51
Substantively, policies related to the Canada-U.S. border encompass trade and travel facilitation
as well as law enforcement activities. For lawful border crossers, the Western Hemisphere Travel
Initiative (WHTI) has required since June 2009 that all travelers present a secure travel document.
The Department of Homeland Security (DHS) has worked with the Canadian government and
with certain U.S. and Canadian states and provinces to develop enhanced driver’s licenses that
meet WHTI requirements; a March 2011 GAO report found a greater than 95% compliance rate
with such requirements.52 In addition to cooperating on WHTI, the two countries have worked to
expand their trusted commercial trucker program (the Free and Secure Trade [FAST] program)
and their trusted traveler program (NEXUS, not an acronym).
Joint border-area law enforcement programs consist primarily of Integrated Border Enforcement
Teams (IBETs) and the Shiprider Program. The IBETs are binational, multi-agency, intelligence-
led enforcement teams focused on identifying, investigating, and interdicting common national
security threats and criminal activity at 24 locations at and between U.S.-Canadian ports of entry.
The Shiprider program allows fully cross-trained and cross-designated agents from each country
to conduct joint enforcement exercises along shared international waterways.
In addition to these programs, Canada’s customs service has stepped up the purchase of high-tech
X-ray equipment, and U.S. and Canadian customs agents are working together to inspect
containers at several Canadian and U.S. seaports. Canada also has set up an Air Transport
Security Authority, which, among other activities, is responsible for pre-board screening. In 2004,
the Canadian government created a Department of Public Safety and Emergency Preparedness, a
counterpart to the U.S. DHS, and a Border Services Agency.
Away from the border, Canada has taken related actions, including freezing terrorists’ assets,
broadening the scope of terrorist activities punishable by law, extending police investigative
powers, introducing legislation that would put restraints on fund-raising activities by extremist
organizations, expanding cooperation between the FBI and the RCMP, and increasing outlays for
countering nuclear, biological, and chemical weapons attacks.53 Canadian police and security
officials arrested 18 individuals on terrorism-related charges in June 2006 (the so-called Toronto
18) and 6 men in another terrorism-related incident in August 2010 (a sting operation known as

51 United States-Canada Beyond the Border Action Plan, December 2011, available at http://www.dhs.gov/xlibrary/
assets/wh/us-canada-btb-action-plan.pdf.
52 U.S. Government Accountability Office, Border Security: DHS Progress and Challenges in securing the US
Southwest and Northern Borders
, GAO-11-508T, March 30, 2011, p. 6, http://www.gao.gov/new.items/d11508t.pdf.
53 For another brief overview of efforts to secure the U.S.-Canada border, see Joint Counter-Terrorism Initiatives. By
Melissa Radford. Border Facilitation: Products and People. By June Dewetering. Both in Canada and the United
States: Shared Interests and Concerns
. Canadian Library of Parliament. January, 2009. http://www.parl.gc.ca/
information/library/PRBpubs/prb0834_00-e.htm.
Congressional Research Service
17

Canada-U.S. Relations

Project Samosa). These incidents did not emerge as major domestic political issues within
Canada, but they renewed debate within the United States about Canada’s immigration practices,
its commitment to a multicultural environment, its security measures, and the presence of its
troops in Afghanistan.54
Economic and Trade Issues
The Canadian economy experienced a shallower recession and has recovered faster from the 2008
global economic crisis than the United States. However, both economies until recently remained
sluggish. Both economies are on track to achieve 1.7% growth in 2013 according to the
Economist Intelligence Unit and IHS Global Insight. These forecasters expect Canada’s GDP to
grow by 2.2% and 2.4% in 2014, and for U.S. growth to achieve growth of 2.6% and 2.5%, in
2014.
Economic Growth
Canada’s economy began to grow again in 2010 following the global financial crisis of 2008.
However, GDP has been slowing from the robust level of 3.4% in 2010 to an estimated 1.7% in
2013. Several factors likely contributed to this slow growth, including the end to the boom in
commodities on which Canada’s economy disproportionately depends; the sluggishness of the
U.S. economy; and the retrenchment of government spending. Growth has been dependent on
personal consumption, especially in the still-buoyant housing sector, but business investment and
export growth remain elusive. The unemployment rate, which hit a generational low of 5.8% in
January 2008, peaked at 8.7% in August 2009, and gradually fell back to 7.1% by August 2013.55
Budget Policy
After racking up 27 straight years of deficit spending prior to the “austerity” budget of 1995,
Canada’s public debt reached a peak of 101.6% of GDP, and government sector spending reached
53.6% of GDP in 1993. Realizing this course was unsustainable, the Liberal government of then-
Prime Minister Jean Chrétien and his Finance Minister Paul Martin embarked on a financial
austerity plan using such politically risky measures as cutting federal funding for health and
education transfers, applying a means test to those eligible for Seniors Benefits, and cuts in
defense. A nationwide goods and services tax was introduced to help close the gap. Under this
budget discipline, the government submitted a balanced budget in 1998 and a political consensus
emerged not to resort to deficit spending, at least until 2009. That year, faced with the fallout of
the global financial crisis, the Conservative government of Prime Minister Stephen Harper
introduced a budget which financed a package of stimulus spending and tax cuts, but which also
reintroduced deficit spending to the Canadian polity. Since then, government policy has been one

54 See for example, “Canada’s Terror Sweep Grabs Spotlight in U.S.” Canadian Press. June 3, 2006. “U.S. Praises
Canada On Terror Arrests But Critics Blast Immigration Laws”; Canadian Press. June 4, 2006. “Terrorists In Toronto:
Is Canada Safe? Are We?” By Tanya Primiani and Christopher Sands; CSIS Commentary Center for Strategic and
International Studies. June 20, 2006. “The Toronto Terror Plot,” Economist. June 10, 2006; “Recent Terrorism-related
Cases in Canada,” January 24, 2011, http://www.cbc.ca/news/canada/story/2011/01/21/f-terror-cases-quickfacts.html;
“Few Details Given As 4 Canadians Are Held In Terrorist Plot,” New York Times. August 28, 2010.
55 Economic data and forecasts are from the Economist Intelligence Unit, IHS Global Insight, Global Trade Atlas, and
Statistics Canada.
Congressional Research Service
18

Canada-U.S. Relations

of retrenchment, with the aim of returning the budget to balance with an C$800 million surplus
forecast by 2015, coincidentally an election year.
Monetary Policy
In contrast to the United States, the Bank of Canada (BOC) has raised interest rates three times—
to a 1% target rate—to constrain demand—until September 2010. This accommodative stance has
been made possible by the virtual absence of inflation, but it has also contributed to a housing
boom and personal consumption boom that is just beginning to decelerate. This, in turn, has led to
record Canadian household indebtedness with the debt-to-disposable income ratio reaching
165.6% in 2013. Yet, the BOC is reluctant to raise interest rates and risk increasing debt-service
costs to the consumer and slowing consumer spending. The Bank’s 1% interest rate has also
helped the Canadian dollar (loonie) maintain its value near parity, although the value of the loonie
has been dropping against the U.S. dollar throughout 2013, from 0.9952 per U.S. dollar at the
beginning of 2013 to 1.063/US$ on December 23, 2013.
Energy
Canada is the United States’ largest supplier of energy—including oil, uranium, natural gas, and
electricity—and, until recently, the energy relationship has been growing.56 Canada is the world’s
fifth-largest petroleum producer, and its reserves are believed to be the third largest in the world
only after those of Saudi Arabia and Venezuela; Canada’s sources of oil include traditional and
offshore wells and, increasingly, Alberta’s oil sands.57 In 2012, the value of U.S. petroleum and
natural gas imports from Canada reached $103.4 billion, up from $65.2 billion in 2009. This
figure largely represents increases in the value and quantity of crude oil exports from Canada.
However, due to the domestic shale gas boom, Canada’s exports of natural gas have been
dropping since 2010. Canada provides 22% of U.S. crude oil imports and supplies 82.6% of U.S.
natural gas imports.58 Canada also is a net exporter of electricity to the United States, and the
North American electricity grid is closely interconnected. Canada is particularly valued because it
is considered a reliable source of energy, as it is not a member of OPEC. However, the main new
pipeline project to bring Canadian oil to the United States—the Keystone XL—remains stymied,
with the State Department yet to make a determination as to whether it may proceed. China has
shown interest in Canada’s oil sector, and has recently bought stakes in the Alberta’s oil sands
projects. Partly as a result of the Keystone XL impasse, the Canadian federal government has
been advocating the construction of a pipeline through British Columbia to export oil to Asia.
Like the Keystone XL, this route has drawn opposition from environmentalists, but also from
First Nations tribes, over whose land much of the pipeline would be constructed.
Bilateral Trade Issues
The United States and Canada enjoy the largest bilateral commercial relationship in the world.
Over the past 20 years, U.S.-Canada trade relations have been governed first by the 1989 U.S.-

56 See CRS Report R41875, The U.S.-Canada Energy Relationship: Joined at the Well, by Paul W. Parfomak and
Michael Ratner.
57 U.S. Energy Information Administration (EIA), Country Analysis Brief: Canada, December 2012,
http://www.eia.gov/countries/cab.cfm?fips=CA.
58 2009 statistics from U.S. International Trade Commission http://dataweb.usitc.gov.
Congressional Research Service
19

Canada-U.S. Relations

Canada Free Trade Agreement and, subsequently, by the 1994 North American Free Trade
Agreement. These agreements, along with the conclusion of the Uruguay Round of multilateral
trade negotiations and the creation of the World Trade Organization, contained mutual
concessions on commercial trade and investment barriers, and, more importantly perhaps,
established binding dispute settlement mechanisms. While these agreements have resolved some
of the sharp differences from the past, questions regarding the effectiveness of dispute resolution
mechanism remain. In addition, both nations are fully engaged in negotiating preferential trade
agreements, together in the Trans-Pacific Partnership negotiations, and separately with the
European Union.
The volume of economic activity across the border underscores the extent of economic
integration between the United States and Canada. The two nations continue to have the largest
trading relationship in the world, with nearly $1.7 billion per day in goods crossing the border in
2012. In that year, Canada purchased 18.9% of U.S. exports and supplied 14.4% of all U.S.
imports. The United States supplied 50.6% of Canada’s imports of goods that year and purchased
74.5% of Canada’s merchandise exports; two-way trade with the United States represented nearly
34.0% of Canadian GDP. While the United States had a trade deficit with Canada of $31.4 billion
in 2012, the United States would have registered a trade surplus without Canadian imports of
crude oil.
Meanwhile, several trade issues—some old, some new—have yet to be completely resolved.
Many of these disputes involve long-running disputes over agricultural commodities or natural
resources, including softwood lumber and farm goods. Some analysts attribute the longevity of
these conflicts to the inherent incompatibility of the two countries’ different natural resource and
agricultural programs, others to the political sensitivity of the commodities under negotiation.
Softwood Lumber
Trade in softwood lumber traditionally has been one of the most controversial topics in the U.S.-
Canada trading relationship. Currently, trade in softwood lumber is governed by a seven-year
agreement (SLA)—reached in 2006 and since extended for two years to 2015—restricting
Canadian exports to the United States. After a prior agreement expired in March 2001, the U.S.
Commerce Department launched countervailing duty and anti-dumping investigations; in May
2002, the International Trade Commission (ITC) found that Canadian imports threatened to injure
U.S. industry, and Commerce applied 27% (later reduced) duties on Canadian softwood. Canada
challenged the agency decisions under NAFTA and in the WTO.
After several years of inconclusive and sometimes conflicting litigation, the current agreement
was reached. As part of a complicated formula, the United States will allow unlimited imports of
Canadian timber when market prices remain above a specified level; when prices fall below that
level, Canada will impose export taxes and/or quotas. In addition, the United States will return to
Canada a large majority of the duties it had collected.59
The implementation of the softwood lumber agreement has not been without controversy. As the
depressed housing market has reduced demand for softwood lumber, the market price has been
under the level ($355 thousand board feet) at which export taxes must be charged. The United

59 “U.S. Gets a Lift In Lumber Fight With Canada.” By Ian Austen and Clifford Krauss. New York Times. August 31,
2005. “Conservative Government Wins Softwood Truce.” Globe and Mail. April 28, 2006.
Congressional Research Service
20

Canada-U.S. Relations

States and Canada resorted to arbitration over the use of adjustment mechanisms to calculate the
quotas used for eastern Canadian lumber. The arbitral panel sided with the United States, and
after Canada did not implement the panel’s recommendation, the United States levied a 10% tariff
on the affected lumber to recoup the compensation awarded by the arbitral panel in April 2009.
In January 2008, the United States also requested arbitration over six provincial forest sector
assistance programs in Québec and Ontario, programs that the United States believes contravene
the anti-circumvention provision of the SLA. In January 2011, the LCIA found certain of these
programs breached the SLA, and Canada began imposing additional charges on lumber from
Quebec and Ontario for the duration of the agreement.
Most recently, the Obama Administration sought arbitration under the SLA over timber grading
practices in British Columbia (BC). The U.S. government claims that the BC government
changed its classification procedures for timber and has been grading an increasing amount of its
cut as salvage Grade 4 lumber. For its part, Canada attributes this increase to an infestation of
mountain pine beetles and rejects the assertion that this policy represents a subsidy for Canadian
producers. An arbitral panel dismissed the U.S. claim in July 2012.
Country of Origin Labeling
Provisions requiring country-of-origin labeling (COOL) of meat, fish, fresh fruits, vegetables, and
various nuts were contained in the 2002 farm bill (P.L. 107-171), as amended by the 2008 farm
bill (P.L. 110-246). Rules implementing country-of-origin labeling took effect on March 16, 2009.
These laws have been especially controversial in the meat industry as domestic livestock
producers and some consumer groups favor the law, while meat processors and livestock
exporters from Canada and Mexico oppose the provisions as protectionist. In 2010, both Canada
and Mexico challenged the provisions at the World Trade Organization (WTO). A WTO dispute
settlement (DS) panel found COOL to be inconsistent with WTO agreement rules on two
grounds: (1) it violates national treatment by treating imported livestock less favorably than
domestic livestock, and (2) it fails to meet the legitimate objective of providing information to
consumers on the origin of meat products. The U.S. appealed the ruling to the WTO Appellate
Body, which upheld Canada and Mexico’s claim on national treatment, but found that COOL did
meet a legitimate objective in providing information to consumers. The WTO Dispute Settlement
Body adopted the reports on July 23, 2012. In response, the U.S. Department of Agriculture
released a new rule which required that labels show the location of each production step and
prohibited the mixing of meat products from different origins. On September 25, 2013, the WTO
established a compliance panel at the request of Canada and Mexico to determine the consistency
of this rule with the previous DSB rulings.
Buy American Provisions
The Buy American provision of the American Recovery and Reinvestment Act of 2009 (ARRA,
§1605, P.L. 111-5) states that no funds shall be appropriated for building projects or public works
projects unless all the iron, steel, and manufactured goods are made in the United States. This
provision was subject to three discrete waivers: (1) applying this policy would not be in the public
interest; (2) the iron, steel, or manufactured products are not produced in sufficient quantities or
of a satisfactory quality in the United States; or (3) the inclusion of the applicable U.S. products
would increase the cost of the overall project by more than 25%. The Senate added language to
ensure that the provisions are applied in a manner consistent with U.S. trade obligations.
Congressional Research Service
21

Canada-U.S. Relations

With regard to Canada, the United States has undertaken government procurement obligations
under the World Trade Organization’s (WTO’s) Agreement on Government Procurement (GPA)
and under the North American Free Trade Agreement (NAFTA). The GPA is a plurilateral
agreement that only binds those WTO members that agreed to undertake obligations under it.
Furthermore, the GPA only applies to the sectors and the procurement agencies that the national
government (and sub-national government agencies) includes in its schedule of national
commitments. NAFTA contains similar commitments on the national level, but excluded sub-
national entities.
Both the United States and Canada have undertaken extensive obligations to open their
government procurements at the national level under both agreements. However, because
Canadian provinces never signed up to the GPA, as had 37 U.S. states, regulations implementing
the ARRA excluded Canadian firms from bidding on ARRA-financed contracts that are tendered
by the U.S. states.60 In February 2010, the United States agreed to permit Canadian firms to bid
on sub-federal ARRA contracts in return for a Canadian commitment to sign its provinces up to
the GPA, which it did by notice to the WTO on March 19, 2010. In addition, both parties
committed themselves to begin negotiations reciprocally to expand commitments for market
access in procurement between the two countries,61 although it is unclear if these negotiations
have actually taken place.
Intellectual Property Rights
In 2013, the U.S. Trade Representative listed Canada on its Special 301 report on intellectual
property rights protections as a “watch list” country for intellectual property rights protections, an
improvement from previous years when Canada was designated a “priority watch list” country.62
This improvement largely reflects Canada’s passage of the Copyright Modernization Act in
November 2012, which implemented the World Intellectual Property Organization’s Copyright
treaty.63 The act is analogous to the U.S. Digital Millennium Copyright Act (DCMA, P.L. 105-
304). The act allows for some format shifting and fair-dealing (fair-use) exceptions, but prohibits
the circumvention of digital protection measures. It also clarified the rights and responsibilities of
Internet service providers for infringement of their subscribers.
In its 2013 Special 301 report, USTR also expressed concern about trade in pirated and
counterfeit goods in Canada, and urged greater enforcement and “deterrent-level” penalties for
IPR infringement. The United States urged Canada to adopt tougher border security measures to
crack down on this trade, including allowing for the seizure of pirated and counterfeit goods by
customs agents without a court order. The report also noted Canada’s regulatory process with
regard to appeals to adverse pharmaceutical products approval decisions and with the Canadian
judiciary’s interpretation of utility in pharmaceutical patents. U.S. pharmaceutical manufacturer

60 Office of Management and Budget, “Updated Implementing Guidance for the American Recovery and Reinvestment
Act of 2009, April 3, 2009. pp. 160-166.
61 “U.S.-Canada Announce Buy American Deal, Provinces to Sign GPA,” Inside U.S. Trade, February 12, 2010.
62 A “Priority Watch List” is a heightened designation of criticism for a country’s allegedly inadequate IPR protection
and enforcement, while the “Watch List” reflects a milder category of criticism. United States Trade Representative,
2011 Special 301 Report, p. 46. http://www.ustr.gov/sites/default/files/
05012013%202013%20Special%20301%20Report.pdf.
63 The WIPO Copyright treaty updates existing copyright protections for Internet and other electronic media.
Congressional Research Service
22

Canada-U.S. Relations

Eli Lilly has sought arbitration through the NAFTA Chapter 11 investor-state dispute settlement
mechanism over the Canadian judiciary’s use of the promise doctrine in evaluating utility.
Environmental Issues
The United States and Canada, which share a common border that stretches 5,500 miles,
cooperate extensively on environmental matters. Since they signed the Boundary Waters Treaty in
1909, the two countries have, through the International Joint Commission, worked together on
protecting and maintaining border waterways, especially the Great Lakes. In 1978, the two signed
the Great Lakes Water Quality Agreement.
In 2002, Canada ratified the Kyoto Agreement; in 2006, however, the government announced that
emission targets had been exceeded. The Harper government has established a goal of cutting
greenhouse gas emissions 20% by 2020, mainly by increasing reliance on hydro- and nuclear
power, and by increasing carbon abatement in the oil sands, but it has also declared that it would
coordinate its greenhouse emission strategy with the United States. In December 2011, Canada
announced that it was withdrawing from the Kyoto Protocol, after having declined to take on a
second phase commitment in June 2011. The controversy of the Keystone XL pipeline is in large
measure due to environmental opposition to the development of the oil sands, as is opposition to
the Pacific gateway pipeline through British Columbia.
The long feud over Pacific salmon—one of the more prominent bilateral disputes in recent
years—had both environmental and commercial aspects. Canada contended that American
fishermen were taking more than their equitable share of the migratory fish; the United States, on
the other hand, maintained that its fishing was in accordance with the 1985 Pacific Salmon Treaty
(PST) and with sound conservation practices. After a pause, talks resumed in 1997, and the two
sides finally reached an accord in 1999; both countries are monitoring implementation of the
agreement.64 The so-called Annex IV fisheries regimes of the PST were renegotiated in 2008.
Other environmental problems the two countries have dealt with in recent years include
secondary wastewater treatment, control of predator fish and other invasive species introduced
into the Great Lakes by ocean-going vessels, and sustainability of the St. Lawrence Seaway. In
addition, the United States and Canada concluded a hazardous waste trade agreement in 1986;
more recently, transboundary shipments of solid waste, particularly from Ontario to Ohio,
Michigan, and other U.S. states, have been under review, and have been the subject of legislation
in the U.S. Congress. The two countries have continued the long-standing debate over the
ecological impact of possible development in Alaska’s Arctic National Wildlife Refuge. Finally,
the two sides continue to monitor the progress of the 1991 Canada-United States Air Quality
Agreement. On January 7, 2003, Canadian and U.S. officials announced a new Joint Border Air
Quality Strategy; under the initiative, pilot programs to reduce air pollution will be developed
involving stakeholders at the state, provincial, and local levels.

64 CRS Report RL30234, The Pacific Salmon Treaty: The 1999 Agreement and Renegotiated Annex IV, by Eugene H.
Buck.
Congressional Research Service
23

Canada-U.S. Relations

Canada and Afghanistan65
Issue Definition
Canada has participated in military operations in Afghanistan from the outset of the conflict in the
fall of 2001. In early 2002, Ottawa deployed troops to Kandahar. However, as the mission
changed focus from peacekeeping to counter-insurgency operations involving combat and
casualties, Canadian public support declined. Parliament approved legislation requiring Canada to
end its combat role by July 2011, and for all troops to be withdrawn by the end of that year. In the
fall of 2009, a long-running scandal erupted when it was alleged that Canadian troops had turned
over insurgent prisoners to Afghan officials, who subsequently tortured the detainees. The Obama
Administration expressed support for a continued role in Afghanistan by Canada. In late 2010, the
Canadian government announced that, among other measures, it would maintain a sizeable
military training contingent in Afghanistan through 2014.
Background and Analysis
Canada was one of the first countries to join the U.S.-led military operation in Afghanistan. In
October 2001, the Canadian government launched Operation Apollo, in support of Operation
Enduring Freedom
. Nearly 900 infantry troops and approximately 40 members of Canada’s
Special Forces unit, Joint Task Force 2, served in the initial combat in Afghanistan. Canadian
forces—about 2,800 during most of their deployment—served on the front line in combat
operations in southern Afghanistan to counter attacks by al Qaeda and Taliban fighters. It was the
fifth-largest national contingent. Canadian troops operated without national combat operational
restrictions (“caveats”). Canada has suffered among the heaviest casualties proportionally of the
NATO coalition member states; a total of 158 Canadians, including one diplomat, have been
killed in Afghanistan.
In addition to infantry troops, Canada contributed a helicopter squadron and Operational Mentor
and Liaison Team (OMLT) trainers; in addition, Royal Canadian Mounted Police have assisted
the Afghan National Police. In August 2005, Canada established a Provincial Reconstruction
Team in Kandahar in the volatile southern part of the country. Ottawa also has provided
considerable humanitarian and reconstruction aid to Afghanistan; in 2011-2012, the Canadian
International Development Agency (CIDA) disbursed C$127.4 million in development and
humanitarian assistance. Canada also shared the leadership of Regional Command-South with the
Netherlands and the UK.
As Canadian military operations in Afghanistan shifted from peacekeeping to counter-insurgency,
public support for Canada’s presence diminished. However, Prime Minister Harper was willing to
challenge public opinion over Canada’s participation in Afghanistan; he relied upon an approach
that emphasized training Afghan troops to replace departing Canadians. In 2006, he won a narrow
vote in parliament to keep Canadian troops in Afghanistan for two additional years. Harper
initially characterized the mission as humanitarian in nature and also asserted that it was in
Canada’s national interest to demonstrate its ability to play a leadership role internationally.

65 Prepared by Carl Ek, Specialist in International Relations; Foreign Affairs, Defense, and Trade Division.
Congressional Research Service
24

Canada-U.S. Relations

In the fall of 2007, Harper appointed an advisory panel to review options on the mission. The
commission found that the troop presence was justifiable and that the mission should be
maintained until 2011, but recommended that Canadian forces be withdrawn unless NATO allies
stepped up their contributions. This became the basis of a compromise between the Liberals and
Conservatives. Harper declared that Canadian troops would be withdrawn unless other NATO
countries provided an additional 1,000 troops. At the April 2008 NATO summit in Bucharest,
France and the United States announced that they would commit 800 additional troops.
Canada’s Afghanistan mission was thrown into the national spotlight in November 2009, when a
Foreign Ministry whistleblower publicly alleged that, in 2006 and 2007, Canadian forces had
turned combatant prisoners over to local Afghan authorities, who subsequently tortured the
detainees; Foreign Affairs Minister Peter MacKay and other officials denied the charges, but later
backtracked somewhat. The controversy, which generated considerable public interest, continued
into mid-2010.
In November 2010, Canada’s Ministers of Foreign Affairs, Defense, and International
Cooperation announced that the Afghan mission would be extended until 2014. They outlined a
new role for Canada to help promote security, stability, and self-sufficiency in Afghanistan, and
stated that it would focus on four areas: education and health of children and youth; promoting
security and rule of law; supporting regional diplomacy; and providing humanitarian assistance.
Toward that end, the ministers said that Canadian troops would be provided to help train the
Afghan National Army, and Canadian civilian law enforcement officers to help develop Afghan
police forces. The ministers declared that the estimated cost of these various initiatives from 2011
to 2014 would be approximately C$700 million.
Status of the Issue
In March 2010, U.S. Secretary of State Hillary Clinton said during a visit to Ottawa that she
hoped Canada would continue its presence in Afghanistan after 2011, suggesting “a training role
instead of a combat role, a logistics-support role instead of front-line combat.” Some observers
noted that the Obama Administration and NATO officials had privately expressed concerns that
the withdrawal of Canadian troops might prompt other allies to bring their troops home. As noted
above, Canada ended its combat role there in July 2011; however, Canadian troops (620 as of
December 2013) will remain until 2014 to help train Afghan national security forces. In
December 2011, it was reported that Canadian Foreign Affairs Minister John Baird said that
Canada would provide C$100 million per year to Afghanistan between 2011 and 2014.
Questions
1. Please describe Canada’s new role in Afghanistan. Are Canadian military trainers
accompanying Afghan troops on patrols? If so, under what rules of engagement are Canadian
troops operating?
2. Do you believe that Canada’s decision to extend its mission in Afghanistan has influenced the
policies of other allies?
Congressional Research Service
25

Canada-U.S. Relations

Canada’s Arctic Sovereignty Claim66
Issue Definition
Scientists have forecast that, by 2030 or earlier, global warming will reduce the Arctic ice pack in
Canada’s northern archipelago sufficiently to create a “northwest passage” that will permit
commercial ship traffic through the summer months. If created, a northwest passage would
significantly reduce costs and transit distances for commercial ships operating between certain
ports. It could also be used by commercial fishing or cruise vessels, ships supporting Arctic
scientific research or resource exploration, or military vessels. The presence of ships in the
passage could require the establishment and enforcement of shipping lanes and other rules for
ensuring safe ship operations, add to existing demands for maritime search and rescue
capabilities, and create a risk of environmental damage to the Arctic. The use of the passage by
foreign military ships might be viewed as creating potential security risks to Canada (and the
United States). Successive Canadian governments have maintained that such a passage would be
an inland waterway, and would therefore be sovereign Canadian territory, subject to Ottawa’s
surveillance and regulation. The United States, the European Union, Japan, and others assert that
the passage would constitute an international strait between two high seas.
Background and Analysis
Arctic sovereignty has been an issue for Canada for decades. In 1985, a U.S. icebreaker, the Polar
Sea
, caused uproar in Canada when it traversed the waters of the northern archipelago without
first seeking permission. Afterward, Washington and Ottawa came to an agreement in 1988 under
which the United States pledged to notify Canada when its ships would transit the region, and
Canada agreed to grant its consent. In recent years, however, the question over who, if anyone,
would have control over the regional waters has intensified as scientific consensus has grown that
the melting of the polar icecap will open up a Northwest Passage during the summer months.
The debate over the Northwest Passage has commercial, environmental, and security
considerations. The opening of a channel of water during the summer months through Canada’s
36,000-island Arctic archipelago would cut shipping routes between Europe and Asia by 3,000-
4,000 miles, saving time and fuel costs. However, many Canadians are concerned that unfettered
maritime traffic through the region could result in serious environmental hazards ranging from
the catastrophe of an oil spill to more cumulative pollution caused by ocean dumping of ballast
and garbage by transiting vessels. In terms of security, the Canadians are concerned that
recognition of the passage as international waters would result in free access to naval warships
and submarines, including, for example, those of Russia and China.
Canada seeks recognition of its sovereignty over the entire area, among other reasons, because of
a strong national identification with its northern regions. Ottawa argues that it has a historical
claim based on centuries of Inuit inhabitation—of the islands and of the ice extending from them.
From a practical standpoint, Canada wishes to have the ability to enforce protection of the fragile
arctic ecosystem and to ensure sustainable commercial fishing practices. In addition, the

66 Prepared by Carl Ek, Specialist in International Relations; Foreign Affairs, Defense, and Trade Division.
Congressional Research Service
26

Canada-U.S. Relations

Canadians want there to be no doubt that they have rights to the region’s abundant natural
resources, including oil, natural gas, minerals, and precious metals.
The Harper government has been seeking to bolster Canada’s sovereignty claim by maintaining
and expanding the “Northern Strategy” launched by his Liberal predecessors. The most visible
part of Conservatives’ plan has been the establishment of a stronger military presence. In July
2007, Harper announced plans for the construction of 6-8 armed, medium-sized icebreakers to
patrol the north. The following month, he traveled to Resolute Bay, Nunavut, and announced
plans to construct a winter warfare training center and deep-water port in the region. He declared
that “Canada’s new government understands that the first principle of Arctic sovereignty is: Use it
or lose it.” Some Canadians, however, have criticized Harper for seeking to militarize the debate.
The prospective passage raises jurisdictional questions. Canadians maintain that it would be an
internal waterway and would likely require all vessels to register with their coast guard’s vessel
traffic reporting system. They contend that this would facilitate possible search-and-rescue
missions, and would dissuade ships bearing contraband from sailing through the region. There is
general agreement that the natural resources in the region are Canadian; the debate concerns free
transit rights. Analysts note that the U.N. Convention on the Law of the Seas calls for the right of
transit passage “between one part of the high seas ... and another part of the high seas.” In
addition, some analysts believe that the recognition of the Northwest Passage as a Canadian
inland waterway would set an international precedent that might be viewed as applicable
elsewhere in the world. Other governments could echo Canada’s sovereignty claim and prohibit
the passage of U.S. naval ships, as well as of oil tankers bound for the United States; the Straits of
Malacca and Hormuz have been cited as examples. Others, however, such as former U.S.
Ambassador to Canada Paul Cellucci, have argue that it would be in the interests of U.S. national
security if Canada were to manage and police shipping through the straits.
Several possible solutions have been put forward. Some argue that Canada could achieve its
objectives through regulations approved by the U.N. International Maritime Organization. Also, it
has been suggested that NORAD and the Arctic Council might be able to coordinate cooperative
patrolling of the passage. Others—though not the United States—have proposed that the
countries bordering the Arctic adopt an agreement prohibiting military, residential, or commercial
use of the region, as was done for Antarctica in 1959. Finally, some believe that a renewed and
updated version of the 1988 U.S.-Canada agreement would suffice.
Status of the Issue
On January 9, 2009, the outgoing Bush White House issued National Security Presidential
Directive 66, entitled Arctic Region Policy. The document reiterated the Administration’s stance
regarding Canada’s sovereignty claim, stating that “the Northwest Passage is a strait used for
international navigation.” The Obama Administration has been operating under the policy
directive. For the time being, Ottawa and Washington may continue to “agree to disagree.”
However, Canadian analysts have argued that the debate over who should manage the straits will
intensify if ships carrying hazardous materials or illegal immigrants are discovered in the region.
In mid-2011, then Foreign Minister Lawrence Cannon announced a new “Statement on Canada’s
Arctic Policy,” which reaffirmed the government’s commitment to Canada’s sovereignty, to
economic and social development, to environmental protection, and to empowerment of the
peoples of the region. The statement also emphasized the government’s intention to negotiate
settlements to long-standing boundary disputes with the United States and Denmark (the latter
was partially resolved in November 2012). The government has emphasized its commitment to
Congressional Research Service
27

Canada-U.S. Relations

the Arctic through frequent visits by government officials; Prime Minister Harper marked his
eighth annual tour of the northern region in August 2013. Because it has been highlighted as a
priority area for the Harper government, this issue will likely continue to be the subject of
bilateral discussions between U.S. and Canadian policy makers. In May 2013, Canada assumed
the two-year revolving chairmanship of the Arctic Council, and declared that sustainable
economic development benefiting indigenous peoples in the High North would be a priority; a
U.S. official subsequently stated that the Council should not diminish its focus on science and
research as priorities. In early December 2013, it was reported that Foreign Minister Baird had
asserted that Canada should seek to claim the North Pole as part of its extended nautical border.
Questions
1. Several governments have taken issue with Canada’s assertion of sovereignty over the Arctic
waters. Do any foreign countries support Canada on this question? Has the Canadian government
offered a legal precedent for its claim?
2. If Canada were to win recognition of its sovereignty over the passage, how might it regulate
shipping traffic through the straits?
3. What might be the security, economic and environmental consequences for the United States if
Canada were to win its sovereignty claim? If the passage were to be declared international
waters?
4. In May 2013, Canada assumed the rotating, 2-year chairmanship of the Arctic Council. Does
the Harper government intend to use this position to assert its claim of sovereignty over the
Northwest Passage?
5. Please discuss examples of bilateral scientific and security-related cooperation between Canada
and the United States in the High North.
Border Security Issues67
Issue Definition
U.S.-Canadian border security has emerged as an area of public concern, particularly since the
9/11 terrorist attacks. The United States and Canada attempt to balance adequate border security
with the facilitation of legitimate cross-border travel and commerce. Generally, the countries have
worked to strike this balance collaboratively, through a series of agreements governing bilateral
border issues; and they continue to work together on core border issues including the
management of border flows and travel documents, joint law enforcement, and a new integrated
entry-exit system. Within the United States, some people remain concerned about the potential for
terrorists and criminals to exploit the border and about the adequacy of infrastructure and
personnel at the U.S.-Canadian border and ports of entry.

67 Prepared by Marc R. Rosenblum, Specialist in Immigration Policy, Domestic Social Policy Division.
Congressional Research Service
28

Canada-U.S. Relations

Background and Analysis
The U.S.-Canadian border between Washington State and Maine spans about 4,000 miles,
includes vastly different types of terrain, and is the site of about 150 ports of entry, including 20
major land ports. (The border between Canada and Alaska spans an additional 1,500 miles.)
According to the U.S. Bureau of Transportation Statistics, in 2012, northern border ports admitted
about 5.6 million trucks, 28,500 trains, 108,000 busses, and 33 million passenger vehicles—
numbers which exceed analogous data for the U.S.-Mexican border for trucks and trains, while
passenger traffic is higher on the southern border.
Western Hemisphere Travel Initiative
The Intelligence Reform and Terrorism Prevention Act of 2004 (IRTPA, P.L. 108-458) required
the Secretary of Homeland Security, in consultation with the Secretary of State, to develop and
implement a plan to require all travelers (i.e., including American and Canadian citizens) to use a
passport or other secure document when entering the United States. (Prior to that time, U.S. and
Canadian citizens were permitted to use driver’s licenses and birth certificates to prove their
citizenship, and certain travelers were admitted based on an attestation of citizenship.) Under the
so-called Western Hemisphere Travel Initiative (WHTI), in effect since June 1, 2009, travelers
must present an approved secure document, including a passport book, passport card, trusted
traveler card (i.e., a NEXUS (not an acronym) or Free and Secure Trade (FAST) card), or certain
other documents for military personnel and certain other special groups. Four states (Michigan,
New York, Vermont, and Washington) and four Canadian provinces (British Columbia, Manitoba,
Ontario, and Québec) issue enhanced driver’s licenses that are also valid for WHTI purposes.
Prior to its implementation, WHTI fostered concern in both countries that the increased
documentation requirements could suppress U.S.-Canadian travel, but no such effect has been
observed. A Government Accountability Office (GAO) review in March 2011 found CBP’s
outreach campaign had led to a greater than 95% compliance rate with WHTI requirements in
FY2010. And an October 2011 GAO report singled out WHTI technology that facilitates
inspections at land borders as one of seven government-wide “successful major acquisitions.”
U.S.-Canada Border Agreements
The United States and Canada have a long history of collaboration around border security. Such
efforts date to February 24, 1995, when the two countries signed a joint accord, Our Shared
Border
, followed by the 1999 Canada-U.S. Partnership Forum (CUSP). Shortly after the 9/11
attacks, the United States and Canada signed a joint statement of cooperation on border security
and migration that focused on the detection and prosecution of security threats, the disruption of
illegal migration, and the efficient management of legitimate travel. The agreement produced a
30-point plan (later updated to 32 points) commonly referred to as the “Smart Border Accord,”
signed on December 12, 2001. The points include coordinated law enforcement, intelligence
sharing, infrastructure improvements, compatible immigration databases, visa policy
coordination, biometric identifiers in travel documents, prescreening of air passengers, joint
screening for high risk travelers, and improved processing of refugee and asylum claims, among
others. In July 2010, the countries signed an Action Plan for Critical Infrastructure intended to
strengthen the safety, security, and resilience of critical shared infrastructure.
Congressional Research Service
29

Canada-U.S. Relations

On February 4, 2011, President Obama and Prime Minister Harper signed a joint declaration
describing their shared visions for a common approach to perimeter security and economic
competitiveness: the Beyond the Border agreement. The agreement describes four key areas of
cooperation: efforts to identify and address threats before they reach the U.S.-Canadian perimeter,
trade facilitation, integrated cross-border law enforcement, and critical infrastructure and
cybersecurity.
On December 7, 2011, President Obama and Prime Minister Harper released the Beyond the
Border Action Plan
, which includes a concrete steps to be taken within each of these areas, along
with deadlines and metrics for measuring progress toward each goal. The plan is most ambitious
with respect to trade facilitation, calling for a harmonized approach to cargo screening under the
principle of “cleared one, accepted twice.” Additional provisions related to border security
include, among others: plans for joint inventories and gap analyses for intelligence work related
to travel and trade threat assessments and border surveillance; automated biographic and
biometric data sharing to verify traveler identities and to share risk assessments and watchlist
information; an integrated entry-exist system so that the record of a land entry into one country
can be used to establish an exit record from the other; broader pre-clearance programs for goods
and travelers; and the expansion of integrated law enforcement efforts including interoperable
radio systems and the deployment of cross-designated law enforcement officers. In December
2012, the two countries published the first Beyond the Border Implementation Report. It
described progress in several areas related to border security, discussed in the remainder of this
section.
Border Management
In the post-9/11 period, border “thickening” arguably has added to border delays, raised
transportation costs, and depressed bilateral flows of people and goods. Several elements of the
Beyond the Border Agreement seek to counter these trends. Under the agreement, the countries
conducted a joint intelligence inventory and gap analysis and a joint risk assessment in 2012, and
they issued common standards for the collection and use of biometric data. These steps build on a
program, in place since 2004, to share passenger information on high-risk travelers en route to
either country through a joint risk-scoring scheme and shared “lookout” data.
With respect to trade facilitation, most of the first year progress consisted of establishing planning
committees, conducting joint training, and publishing joint studies. The countries expanded
benefits for NEXUS and FAST trusted travelers and commercial truckers, and expanded the
programs to 19 border crossing locations, 33 marine reporting locations, and 8 Canadian pre-
clearance airports. Additional pilot programs have been established for advanced review and
certification of binational trade entries and for automatic clearance of certain cargo arriving at
Canadian seaports and being shipped by truck or rail to the United States.
Joint Law Enforcement
Three collaborative law enforcement programs exist along the U.S.-Canadian border. As part of
the Smart Border Accord, the countries have established 15 Integrated Border Enforcement
Teams (IBET), operating at 24 locations along the border. The IBETs are binational, multi-
agency, enforcement teams including representatives from U.S. Customs and Immigration
Enforcement (ICE), U.S. Customs and Border Protection (CBP), the U.S. Coast Guard, Canada
Border Services Agency (CBSA), and the Royal Canadian Mounted Police (RCMP), along with
Congressional Research Service
30

Canada-U.S. Relations

municipal, state, and provincial governments and law enforcement agencies. IBETs share
intelligence to identify, investigate, and interdict common national security threats and
transnational criminal activity.
Second, beginning in 2007, ICE expanded its Border Enforcement Security Task Force (BEST)
program to the U.S.-Canada border. The BEST program also emphasizes information sharing to
combat cross-border crime, and brings in a larger number of federal, state, provincial, local, and
tribal stakeholders from both sides of the border, all under ICE leadership. U.S.-Canadian BEST
task forces currently operate in Blaine, WA; Seattle, WA; Detroit, MI; Buffalo, NY; and Massena,
NY.
Third, since 2005, the countries have operated the Shiprider program, which places fully cross-
trained, cross-designated RCMP and U.S. Coast Guard agents and officers on law enforcement
vessels operating along certain international waterways. The agents conduct joint enforcement
activities on both sides of the border, under the command of a U.S. or Canadian officer (based on
the ship’s location south of north of the border). The Obama and Harper Administrations signed
an agreement in 2009 to extend and expand Shiprider, which had previously operated as a pilot
program; and expansion of the program was identified as a point in the Beyond the Border Action
Plan
. The Canadian parliament passed legislation permanently authorizing the Shiprider program
in June 2012, and the U.S. Coast Guard and RCMP signed a finalized Shiprider agreement in
June 2013.
In addition to these programs, the U.S.-Canada Cross Border Crime Forum, which includes the
Secretary of Homeland Security, the Attorney General, and the Canadian Ministers of Public
Safety and Justice, provides a regular meeting place for the top law enforcement officials from
both countries to discuss cross-border criminal activity and to coordinate their responses.
Integrated Entry-Exit System
One notable result of the Beyond the Border agreement has been the integrated entry-exist system
pilot program. The purpose of the program is to permit the United States and Canada each to
track people exiting through border ports by sharing data—which each country already collects—
on people entering the other country (i.e., the United States uses Canadian entry data to track
exits, and vice versa). For the United States, the collection of such exit data fulfills part of the
Department of Homeland Security’s (DHS’s) requirement, pursuant to Section 110 of the Illegal
Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA, P.L. 104-208, Div. C),
as amended, to complete an automated entry and exit control system that collects records of all
alien arrivals and departures.
The first phase of the pilot program ran from September 2012 to January 2013, and consisted of
the exchange of biographic travel records (i.e., names, birthdates, and other travel document
information) for third country nationals and permanent residents (i.e., for persons other than U.S.
or Canadian citizens) at four designated ports of entry. According to the Canadian-U.S. report on
the program, Canada was able to reconcile 94.5% of U.S. entries (i.e., Canadian exits) with
Canadian immigration databases, and the United States was able to reconcile 97.4% of Canadian
entries (i.e., U.S. exits). Based on these results, the countries initiated phase 2 of the pilot
program in June 2013, during which biographic information is being exchanged for third country
nationals and permanent residents at all automated POEs on the U.S.-Canada border. During
phase 3, scheduled to begin in June 2014, biographic information also will be exchanged for U.S.
Congressional Research Service
31

Canada-U.S. Relations

and Canadian citizens traveling between the two countries. Current plans do not call for the
program to collect and share biometric traveler data (e.g., fingerprints, digital photographs).
Border Infrastructure and Personnel
A series of U.S. laws since 2001 have increased the number of enforcement personnel at the U.S.-
Canadian border and strengthened border screening technology. The USA PATRIOT Act of 2002
(P.L. 107-56) authorized the Attorney General to triple the number of border patrol personnel and
immigration inspectors along the northern border and to make technological improvements and
acquire additional equipment. The Enhanced Border Security and Visa Reform Act of 2002 (P.L.
107-173) similarly authorized additional personnel, technology, and infrastructure improvements.
The Trade Act of 2002 (P.L. 107-210) required 285 additional customs inspectors for the northern
border in FY2003. And the IRTPA authorized an increase of 2,000 border patrol agents per year
for FY2006-FY2010, while stipulating that 20% of the increases in agent manpower be assigned
to the northern border.
A total of 2,206 border patrol agents were posted in northern border sectors in FY2012, up from
340 in FY2001, along with 3,668 U.S. Customs and Border Protection (CBP) inspectors at ports
of entry, up from 1,550 in FY2001. These increased deployments represent substantial growth in
border enforcement personnel, but lag slightly behind the goals established by the USA-
PATRIOT Act and the IRTPA.
A second issue is the ability of the transportation infrastructure to cope with increased security
measures. The aging condition and limited capacity of the land border infrastructure preceded the
terrorist attacks. For example, the Ambassador Bridge and the Detroit-Windsor Tunnel, which
together carry 25% of total U.S.-Canada cross-border traffic, both opened in 1930. Approaches to
the crossings, often city streets, have been criticized as inadequate to the commercial needs of the
21st century. This issue affects the efficient implementation of security measures. The FAST
system provides for dedicated lanes at land border ports for expedited preclearance. However,
these lanes will not save time if the FAST participant cannot access this lane due to congestion or
delays at the points of access. The SPP completed a pilot program that attained a 25%
improvement in border crossing times at the Detroit-Windsor gateway in December 2005, yet the
aging and adequacy of the border infrastructure may affect whether such improvements are
sustainable.
There are two competing plans to build additional bridge capacity over the Detroit River to ease
truck congestion on the Ambassador Bridge. One proposal involves building a new span adjacent
to the Ambassador and has been put forward by the private owner of the bridge. A competing
proposal, the Detroit River International Crossing (DRIC), would be built approximately 2 miles
south of the Ambassador between Zug Island in Detroit and the Brighton Beach area of Windsor.
The DRIC proposal is supported by the Canadian government, which believes a new span should
not be privately held. To this end, then-Canadian Transport Minister John Baird offered to loan
the state of Michigan $550 million to fund its share of the new bridge, the total cost of which is
expected to be $5.3 billion. Michigan Governor Rick Synder endorsed the construction of the
bridge in January 2011, but a bill creating a bridge authority was rejected by a Michigan state
Senate committee in October 2011. In June 2012, Prime Minister Harper and Governor Synder
announced an agreement to build the bridge using solely Canadian funds with a Canadian entity
responsible for the design, construction, and operation of the bridge. On April 12, 2013, the U.S.
State Department approved a permit to build the bridge allowing construction to proceed.
Construction may start in 2014.
Congressional Research Service
32

Canada-U.S. Relations

Status of the Issue
The Beyond the Border Action Plan lays out an ambitious agenda for deeper cooperation under
the “cleared-once, accepted twice” principle. The plan’s first Implementation Report describes
progress within each area related to border security; but most of these initial steps consist of
research, reporting, and information exchange. Implementing the next stages of integrated border
management and law enforcement may present ongoing challenges for both countries.
Moreover, while the Beyond the Border plan responds to long-standing concerns about
inefficiency at the border, CBP and other observers still consider the U.S.-Canadian border to be
the locus of a wide range of security threats. A 2010 joint assessment by CBP, Canada Border
Services Agency, and the Royal Canadian Mounted Police highlighted threats associated with
transnational terrorist entities present along both sides of the U.S.-Canadian border; criminal
enterprises focused on illegal drugs, firearms, tobacco, intellectual property, and currency; and
vulnerabilities related to migration, agriculture, and transnational health issues. A 2013 study by
the Canadian Macdonald-Laurier Institute found particular problems associated with illegal
tobacco smuggling, and a nexus between tobacco smuggling and other organized crime
concerning illegal drugs, weapons, and human trafficking.
Questions
1. The United States and Canada judged phase 1 of the integrated entry-exit pilot program to be a
success, and phase 2 testing began in June 2013. Is the integrated biographic program a workable
building block for satisfying the biometric entry-exit system mandate in U.S. law? How will
Canada and the United States address privacy concerns during phase 3 of the program, when all
travelers’ records (i.e., including those of U.S. and Canadian citizens) will be shared between the
two countries?
2. The Beyond the Border agreement calls on the two countries to move customs inspection
activities away from the border under the principle of “cleared once, accepted twice.” This
approach currently is limited mainly to Canadian airports and a pair of pilot programs involving
rail and truck shipments to the United States. What is the Canadian government doing to facilitate
pre-clearance and pre-inspections for travel through land ports? What safeguards will be in place
to protect the integrity of pre-cleared truck shipments? How will common perimeter programs
address differences between U.S. and Canadian attitudes about privacy protections and civil
liberties, and differences in how the countries define certain criminal offenses?
3. With Canada’s permanent authorization of the Shiprider program and the finalized Shiprider
agreement signed in June 2013, what plans do the two countries have to expand the program to
additional locations? Does the successful implementation of the Shiprider program argue in favor
of cross-designation of certain land-based law enforcement officers? Some Members of Congress
have raised concerns about staffing levels at the northern border, which remain slightly behind
statutory goals; would cross-designation be an appropriate strategy for meeting these
requirements?
Congressional Research Service
33

Canada-U.S. Relations

Canada’s Free Trade Agreement Agenda68
Issue Definition
Regional and bilateral free trade agreements (FTA) have become a prominent, and to some,
controversial, feature of the world trading system. In the past, the United States was relatively
more aggressive in pursuing FTAs, while Canada emphasized multilateral trade liberalization to
supplement liberalization with its predominant partner, the United States, first through the U.S.-
Canada FTA and subsequently through the North American Free Trade Agreement (NAFTA).
This trend has shifted as Canada has negotiated an FTA with the European Union and has joined
the Trans-Pacific Partnership (TPP), a proposed FTA being negotiated among the United States,
Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.
Background
After concluding the U.S.-Canada FTA in 1988 and expanding it to include Mexico in 1994, both
the United States and Canada made the new WTO the cornerstone of further trade liberalization.
While both countries concluded FTAs, political rationales were often paramount. For example,
close ties prompted both countries to conclude FTAs with Israel. Canadian attempts to establish a
greater role in Latin America were reflected in FTAs with Chile (1997) and Costa Rica (2002).
Negotiations were started with the European Free Trade Area (EFTA) nations (Norway,
Switzerland, Iceland, and Liechtenstein) in 1998, with Singapore and the Central American Four
(El Salvador, Guatemala, Honduras, Nicaragua) in 2001, and with South Korea in July 2005.
However, none of these negotiations yielded an agreement during the Liberal governments of
Jean Chrétien and Paul Martin. Moreover, the importance of such agreements was overshadowed
by the overwhelming volume of Canadian trade that continued to be conducted under NAFTA,
with the United States continuing to account for the bulk of that trade.
In 2001, the George W. Bush Administration embarked on a new trade strategy known as
“competitive liberalization.” This policy pushed forward trade liberalization simultaneously on
bilateral, regional, and multilateral fronts. It was designed to spur trade negotiations by
liberalizing trade with countries willing to join FTAs, and to pressure other countries to negotiate
multilaterally. A pending agreement with Jordan, negotiated by the Clinton Administration, was
passed by Congress in 2001. Under trade promotion authority (TPA) passed by Congress in 2002
and in effect until 2007, FTAs were negotiated and approved by Congress with Chile, Singapore,
Australia, Morocco, the countries of the Central American Customs Union and Dominican
Republic (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican
Republic), Bahrain, Oman, and Peru. In addition, negotiations were conducted with the nations of
the South African Customs Union (SACU) (Botswana, Lesotho, Namibia, South Africa, and
Swaziland), the United Arab Emirates, Malaysia, and Thailand, but they resulted in no agreement.
Long pending agreements with Colombia, Panama, and South Korea concluded under TPA were
approved by Congress in October 2011. While the Obama Administration’s early trade policy
stressed enforcement of existing trade agreements rather than negotiating new ones, it is now
negotiating the two largest regional FTAs in U.S. history: the proposed TPP and the proposed

68 Written by Ian F. Fergusson, Specialist in International Trade and Finance; Foreign Affairs, Defense, and Trade
Division.
Congressional Research Service
34

Canada-U.S. Relations

Trans-Atlantic Trade and Investment Partnership (TTIP) between the United States and the
European Union.
The Conservative government of Prime Minister Stephen Harper, first elected in 2006, has placed
greater emphasis on negotiating regional and bilateral FTAs. The Harper government has
concluded and put in effect agreements with EFTA, Peru, Colombia, Jordan, and Panama. Canada
signed an FTA with Honduras on November 5, 2013, which awaits ratification by Parliament. In
general, the Conservative and Liberal parties have voted to approve these agreements, but have
been opposed by the labor-influenced New Democratic Party (NDP) and the Québec-separatist
Bloc Québecois. In addition, negotiations have been started with the Dominican Republic, India,
Japan, Morocco, Ukraine, and the nations of CARICOM, and are continuing with South Korea
and Singapore. With South Korea, issues familiar to U.S. negotiators, such as market access for
beef and non-tariff barriers in the auto sector, are complicating the talks.
Along with the United States, Canada is negotiating a Trans-Pacific Partnership among 12 nations
of the Asia-Pacific. Canada, along with Mexico, joined the negotiations in July 2012 after
intensive bilateral talks with other TPP members designed to assess Canada’s willingness to
negotiate an ambitious and high standard agreement. While the negotiations remain confidential,
several nations including Australia, New Zealand, and the United States, are seeking greater
access to Canada’s supply management restricted dairy and poultry sectors. Along with these
countries, Canada likely is seeking greater access to the restricted beef and grain markets of
Japan. In addition, the United States may be seeking additional commitments on intellectual
property rights, and Canada may be seeking U.S. commitments on government procurement and
the application of Buy American policies. Both may be seeking greater access to the service
markets of other TPP countries. TPP leaders were aiming to conclude the negotiations in 2013,
but the trade ministers made clear after their meetings in Bali from December 7-10, that the
negotiations remain ongoing. The ministers stated that they identified potential “landing zones”
for remaining issues, and will meet again in January 2014.
After nearly 4½ years, Canada and the European Union (EU) announced an agreement in
principle to a Comprehensive Economic and Trade Agreement (CETA) on October 18, 2013. It is
Canada’s most ambitious proposed trade agreement since NAFTA, and it has raised issues of
concern to countries at a similar level of development and with relatively low tariffs. The results
of these negotiations could presage the Trans-Atlantic Trade and Investment Partnership (TTIP)
talks between the United States and the European Union. The agreement is expected to be ratified
by 2015. While the final text is still being prepared, provisions of the agreement include:
• Full elimination of non-agricultural tariffs with transition periods for autos, and
ships (Canada).
• Cumulation of rules-of-origin for autos to reflect integrated nature of North
American auto market. Both sides agree to work for greater harmonization of
auto standards.
• Agriculture tariffs to be largely eliminated after transition periods; 92.8% of
Canadian agriculture tariffs lines and 93.5% of EU agriculture tariff lines will be
eliminated. Additional tariff-rate quotas (TRQ) would be available for certain
agriculture products: a TRQ of 17,000 metric tons for high quality EU cheese in
Canada; a TRQ of 50,000 metric tons of non-growth hormone Canadian beef in
EU.
Congressional Research Service
35

Canada-U.S. Relations

• No additional EU market access in the Canadian supply-managed dairy or
poultry sectors.
• Broad coverage across all sectors for services market access.
• Coverage of temporary movement of professionals and intra-corporate
transferees and mutual recognition of professional qualifications.
• Government procurement: each side has granted the other the most favorable and
comprehensive market access of its respective FTAs.
• Canada agreed to measures to strengthen its intellectual property regime for
pharmaceuticals.
• Investor-state dispute mechanism available to investors from both parties.
Provisions to insure transparency and to allow for early dismissal of frivolous
claims.
Status of the Issue
The Conservative government’s enthusiasm for negotiating FTAs was well expressed by then-
International Trade Minister Peter Van Loan back in April 23, 2010. Canada is pursuing FTAs
“with a vigor right now because we’re a trading country, our businesses need it, our workers need
it, our prosperity depends on it, so we’re going to make it happen for Canada and not simply
depend on the WTO.” While in some ways this policy resembles the “competitive liberalization”
policy undertaken by the George W. Bush Administration, it remains to be seen whether
agreements resulting from such negotiations will increase trade flows and lessen the dependence
of Canada on the U.S. market. It also remains to be seen whether Canada will retain its traditional
engagement in the WTO.
Questions
1. How controversial is the Harper government’s trade policy? Does the public approve of further
trade liberalization? How does the continuing decline of the Canadian manufacturing sector affect
public attitudes towards free trade generally?
2. Do you think the emphasis on negotiating bilateral and regional FTAs complements or weakens
the multilateral trading system? Does this policy reflect a lack of confidence in the ability to
conclude the WTO Doha Round, or that Canada will not benefit much from a Doha agreement?
3. What should Canada seek to achieve in the TPP negotiations? Now that Japan has joined the
TPP and South Korea may seek to join, are bilateral FTA talks between Canada and those two
countries still relevant? Would joining the TPP advance the objective, promoted by successive
Canadian governments, of expanding Canada’s role in the Asia-Pacific region?
5. Canada and the European Union have announced a Comprehensive Economic and Trade
Agreement. What aspects of the agreement are particularly favorable to Canada? In what areas
would Canada have to undertake additional commitments? Should Canada and Mexico be a part
of the TTIP agreement given the integrated nature of the North American economy?
Congressional Research Service
36

Canada-U.S. Relations

North American Cooperation on Competitiveness
and Security
69
Issue Definition
How can the United States improve cooperation with its North American neighbors on issues
related to economic competitiveness, trade, transportation, and security? How are the United
States, Canada, and Mexico currently cooperating on improving competitiveness, promoting
economic growth, and enhancing security in North America? Should the three countries focus
more on trilateral cooperation or are separate, bilateral cooperation efforts with Canada and
Mexico potentially more effective due to the different issues facing each country?
Background and Analysis
The United States, Canada, and Mexico have been partners in the North American Free Trade
Agreement (NAFTA) since 1994 and benefit from a broad and expanding trade relationship.
Since 2005, the three countries have also made efforts to increase cooperation on economic and
security issues through various endeavors, most notably by participating in trilateral summits
known as the North American Leaders’ Summits. The first North American Leaders’ Summit took
place on March 23, 2005, in Waco, Texas, and was followed by several trilateral summits in
Mexico, Canada, and the United States. A notable outcome of the first summit was the former,
trilateral initiative known as the Security and Prosperity Partnership of North America (SPP) to
increase security and enhance prosperity in the United States, Canada, and Mexico. While the
SPP is no longer an active initiative, current bilateral efforts pursed by the Obama Administration
to enhance cooperation with Canada and Mexico have built upon the accomplishments of the
working groups formed under the SPP. Proponents of North American competitiveness and
security cooperation view the initiatives as constructive to addressing issues of mutual interest
and benefit for all three countries. Opponents of the former SPP were critical of this effort,
claiming that it was an attempt by some to create a common market or economic union in North
America.
Trilateral Cooperation
The most recent North American Leaders’ Summit was hosted by President Barack Obama on
April 2, 2012, in Washington, DC, at the White House where he met with Canadian Prime
Minister Stephen Harper and Mexican President Felipe Calderón to discuss the economic well-
being, safety, and security of the three countries. After the meeting, the leaders issued a joint
statement in which they renewed their commitment to North American cooperation in the
following key areas of interest: protection and enforcement of intellectual property rights (IPR);
enhancement of collective energy security, including the safe and efficient exploration and
exploitation of resources; advancement of the goals of the Energy and Climate Partnership of the
Americas and enhancement of electricity interconnection in the Americas; support of efforts to
advance a lasting global solution to the challenge of climate change; and the recognition of the

69 Prepared by Angeles Villarreal, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade
Division.
Congressional Research Service
37

Canada-U.S. Relations

importance of adopting the Budapest Convention on Cybercrime. In addition, the leaders
announced the North American Plan for Animal and Pandemic Influenza (NAPAPI) to strengthen
North America’s response to future animal and pandemic influenza events.
Most efforts to increase cooperation, either through trilateral or bilateral endeavors, generally
have followed the recommendations of special working groups created after the first North
American Leaders’ Summit. These recommendations included (1) increasing the competitiveness
of North American businesses and economies through more compatible regulations; (2) making
borders smarter and more secure by coordinating long-term infrastructure plans, enhancing
services, and reducing bottlenecks and congestion at major border crossings; (3) strengthening
energy security and protecting the environment by developing a framework for harmonization of
energy efficiency standards and sharing technical information; (4) improving access to safe food
and health and consumer products by increasing cooperation and information sharing on the
safety of food and products; and (5) improving the North American response to emergencies by
updating bilateral agreements to enable government authorities from the three countries to help
each other more quickly and efficiently during times of crisis.
Bilateral Cooperation
The Obama Administration has engaged in efforts with Canada and Mexico to increase regulatory
cooperation, enhance border security, promote economic competitiveness, and pursue energy
integration primarily through bilateral initiatives. For example, in February 2011, President
Obama and Canadian Prime Minister Harper announced the Beyond the Border Action Plan: A
Shared Vision for Perimeter Security and Economic Competitiveness declaration, establishing a
new long-term partnership whereby the two countries work in partnership within, at, and away
from the border to achieve enhanced security and accelerate trade. In addition to this action plan,
the two leaders created a U.S.-Canada Regulatory Cooperation Council to improve alignment of
regulatory approaches.
In February 2012, the United States and Mexico announced the first two-year work plan for the
High-Level Regulatory Cooperation Council (HLRCC) to help align regulatory principles, an
effort similar to the U.S.-Canada Regulatory Cooperation Council. The United States and Mexico
also have a bilateral initiative for border management under the Declaration Concerning Twenty-
first Center Border Management that was announced in 2010. The United States also has pursued
other cooperative efforts with its two neighbors in areas such as education, telecommunications,
and transportation infrastructure planning.
Status of the Issue
The United States, Canada, and Mexico have made progress in recent years in addressing issues
related to North American competitiveness and security. The Obama Administration has affirmed
its commitment to continue past efforts on North American cooperation under a different
approach from the Bush Administration’s SPP framework. The 2012 North American Leaders’
Summit has served as a mechanism to increase communications among North American trading
partners on issues of mutual interest, but because there are no binding agreements, their role in
improving prosperity and security has been limited.
Congressional Research Service
38

Canada-U.S. Relations

Questions
1. How effectively has the United States pursued North American cooperation in the border
initiatives with Canada and Mexico or in the regulatory initiatives? What other steps can be taken
by the three countries to improve competitiveness of industries in the region?
2. How successful has North American cooperation been in improving safety, security, and the
flow of goods and services among NAFTA partners? What have been the actual results of the
numerous initiatives launched under the SPP? Has the emphasis on border security caused delays
in border crossings or transportation of merchandise?
Canada’s Financial System70
Issue Definition
Canadian banks on the whole weathered the 2008-2009 financial crisis better than banks in the
United States and Europe. Nevertheless, Canada’s financial system was buffeted by the financial
crisis as equity and housing prices fell and as economic growth slowed as a result of the downturn
in global trade. Canada’s economy is also feeling the effects of the European sovereign debt
crisis, slow growth in export markets, and household indebtedness. Are there lessons to be
learned from Canada’s banking system, which has proven to be somewhat more immune to the
financial troubles that have brought down better-known banks?
Background and Analysis
Canada’s financial system proved to be more resistant to the failures and bailouts that marked
systems in the United States and Europe. No Canadian financial institution failed or required
public capital injections. Nevertheless, the financial crisis and global economic recession battered
the Canadian economy in ways that are similar to those in the United States and in Europe.
According to the International Monetary Fund (IMF), the Canadian economy contracted by -2.5%
in 2009, before rebounding to a positive growth rate of 3.0% in 2010. Canada’s economy is
estimated to have grown by 1.7% in 2012, but some forecasts for 2013 indicate that economic
growth could slow slightly to 1.6%. The vast economic and financial linkages between Canada
and the United States mean that Canada is affected by the performance of the U.S. economy.
Much of Canada’s economic recovery is attributed to low interest rates and a $33 billion fiscal
stimulus package—one of the largest among advanced economies—over two years in
infrastructure spending, tax decreases, worker retraining, housing, and aid to struggling
industries. In addition, the federal government pumped additional liquidity into the economy by
purchasing insured mortgages. In April 2009, the Bank of Canada lowered the nation’s key
interest rate to 0.25%. A drop in commodity prices caused the Canadian dollar to fall relative to
the U.S. dollar, which improved the cost competitive position of Canada’s exports. In relative
terms, Canada’s fiscal outlook is among the best in the G-20.

70 Prepared by James Jackson, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade
Division.
Congressional Research Service
39

Canada-U.S. Relations

According to the Bank of Canada, major risks to Canada’s economic recovery during the near
term are (1) global sovereign debt issues associated with some European countries, fragmented
financial systems in Europe, and weaker than expected growth in Europe potentially could raise
borrowing costs for Canadian banks; (2) weak global demand that dampens global economic
recovery and prolongs the financial system’s vulnerability; (3) the low interest rate environment
that can lead to distortions in financial markets as investors search for high-yielding assets and
assume greater risk; and (4) high levels of indebtedness among Canadian households that leave
them vulnerable to economic and financial shocks. Although Canadian banks are not highly
exposed to public or private entities in Greece, Italy, Spain, or Portugal, Canadian banks are
exposed to banks in Europe and the United States that are themselves highly exposed to the four
countries. This high level of financial linkages could amplify shocks throughout the global
financial system.
In recent years, Canadian banks have increased their ability to withstand adverse shocks by
increasing the level and quality of their capital in line with the Basel III guidelines, and they have
improved their liquidity management. Despite these improvements, Canada’s financial system
would be affected by (1) weak global demand for exports that would tend to raise the rate of
unemployment; and (2) an increase in the level of volatility in global financial markets and a
decline in market confidence due to a slowdown in global economic growth that could result in
higher funding costs for Canadian banks and higher costs for loans and tighter lending conditions
in Canada.
In 2013, Canada implemented a number of reforms of the financial system, including:
• Implementing Basel III capital rules for banks and a capital surcharge for six
systemically important banks;
• Establishing a credit-rating assessment group (CRAG) to reduce the Bank of
Canada’s (BOC’s) reliance on external credit ratings by evaluating the credit risk
of assets and other financial exposures that the BOC manages on behalf of the
Canadian government;
• Establishing a central counterparty for corporate securities (repurchase
agreements) and new international risk management standards for systemically
important financial market infrastructures;
• Implementing a resolution and recovery framework for major banks;
• Adopting International Financial Reporting Standards (IFRS) and Auditing
Standards for banks and life insurance companies;
• Making progress toward meeting the international agreement to have all over-
the-counter derivatives cleared through central counterparties; and
• Working toward adopting a single securities regulator to reduce compliance
costs, simplify the monitoring of systemic risk, and facilitate coordination with
other agencies and policy intervention.
The IMF has concluded that Canada’s financial system is highly mature, sophisticated, and well-
managed. In addition, the system is characterized by strong prudential regulation and supervision,
stringent capital requirements, low risk tolerance, a well-designed system of deposit insurance
and arrangements for crisis management and resolution of failed banks, a well-regulated and
conservative mortgage market, and comprehensive mortgage insurance coverage. Supervisory
Congressional Research Service
40

Canada-U.S. Relations

responsibility for the financial sector in Canada is divided among the federal government, the
provincial governments, and among a group of agencies within the federal government. The
federal government is responsible for supervising all banks, federally incorporated insurance
companies, trust and loan companies, cooperative credit associations, and federal pension plans.
Provincial governments are responsible for supervising securities dealers, mutual fund and
investment advisors, credit unions, and provincially incorporated trust, loan, and insurance
companies. As a result, there are 13 regulatory authorities, each administering separate sets of
securities laws and regulations.
Within the federal government, the Financial Institutions Supervisory Committee (FISC) acts as
the chief coordinating body that sets regulatory policy and supervises financial institutions. The
Committee is comprised of the Department of Finance of the Ministry of Finance and four
independent government agencies: the Office of the Superintendent of Financial Institutions
(OSFI); the Bank of Canada; the Canada Deposit Insurance Corporation; and the Financial
Consumer Agency of Canada (FCAC). All of these agencies report to the Minister of Finance,
who is responsible to the Canadian Parliament. The Bank of Canada is responsible primarily for
conducting monetary policy by setting interest rate targets and adjusting the supply of credit. The
bank also serves as the key component in the payments system by providing a check clearing
function, and it serves as the traditional lender of last resort. The Office of the Superintendent of
Financial Institutions plays a key role in Canada’s financial supervisory scheme by supervising all
domestic banks, branches of foreign banks operating in Canada, trust and loan companies,
cooperative credit companies, life insurance companies, and property and casualty insurance
companies.
The financial system is dominated by five large banking groups (Royal Bank of Canada, TD
Canada Trust, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank) that account
for about 60% of total assets. In comparison, foreign banks account for about 4% of assets. The
low representation by foreign banks is attributed to the “widely-held” rule for large banks that
limits the concentration of bank share ownership and, therefore, reduces the scope for mergers
and for foreign entry through acquisition. Canada’s financial legal framework has allowed
Canadian banks to concentrate on their low-risk, profitable domestic retail banking activities
(services provided to individuals including: deposits, savings accounts, mortgages, credit cards,
etc.), leaving large domestic borrowers to conduct their wholesale banking activities (services
provided to corporations, governments, and other entities) abroad. Canada’s insurance sector is
dominated by three large domestic groups, which account for over 80% of the assets in this
sector. The securities sector is marked by large Canadian, as well as U.S. and UK securities firms.
Unlike the United States and some European countries, subprime mortgages account for less than
5% of Canadian mortgages, which sharply limited Canada’s direct exposure to the meltdown that
occurred in the subprime mortgage market. In addition, Canadian law requires that all bank-held
mortgages above a loan-to-value ratio above 80% be insured, which has curtailed the
securitization of mortgages by banks in Canada. In addition, prepayment penalties and the lack of
interest deductibility reduce the demand for long-term mortgages, so the maturity of most
mortgages does not exceed 5 to 10 years.
Canada’s financial supervisory system and regulatory structure have proven to be less susceptible
to the bank failures that have loomed in the United States and Europe. Nevertheless, Canada’s
approach has a number of drawbacks. Canada’s system of regulating securities markets at the
provincial level means that regulations regarding market participants and investor protection
differ by province and that the nature, structure, and powers of the provincial regulators also vary.
Congressional Research Service
41

Canada-U.S. Relations

In addition, the conservative, risk-adverse approach employed by Canada’s banks shielded the
banks from some of the current financial turmoil; the approach also reduces efficiency in the
market and reduces competition. Acquisition of Canadian banks is significantly impeded by the
rule that bank stocks be widely held and mergers are effectively prohibited. With reduced
competitiveness pressures, Canadian banks maintain low-risk balance sheets at the expense of
greater innovation and more efficient capital allocation. This approach also means that financing
for small firms and venture capital for potentially high-growth companies is sharply reduced. In
concert with other advanced economies, Canada is moving to provide greater oversight of the
over the counter (OTC) derivatives market by developing central counterparty services and a
central clearing of standardized OTC derivatives contracts.
Questions
1. Do the differences in the size and the scope of the U.S. and Canadian financial markets reduce
the importance of the Canadian system as a model for the United States to potentially follow?
2. Are there aspects of Canada’s federal supervision of its banking system that could serve as a
model for bank supervision by the United States?
3. Canada’s approach to financial supervision concentrates the majority of that responsibility in
an authority that is separate from the central bank. Is this an approach that the United States
should consider at it evaluates the effects of changes it has made to its own regulatory structure?
Canada’s Supply Management Programs for Dairy,
Poultry, and Eggs
71
Issue Definition
Canada uses supply management to support its dairy, poultry, and egg sectors. Its main features
(1) provide price support to producers based on their production costs and return on equity and
management, (2) limit production to meet domestic demand at the cost-determined price, and (3)
restrict imports to protect against foreign competition. The Canadian government has supported
producers’ decisions to use this approach for more than 40 years, and succeeded in limiting
imports of these products in negotiating the U.S.-Canada Free Trade Agreement, its multilateral
commitments in the Uruguay Round’s Agreement on Agriculture, and for the most part in its
bilateral free trade agreements. Canada’s interest in participating in the Trans-Pacific Partnership
(TPP) trade negotiations has renewed calls from interest groups in the United States and New
Zealand for Canada to open its borders to imports of these products. While Canadian dairy,
poultry, and egg producers generally oppose trade liberalization, others argue that Canada should
consider making concessions so that other Canadian economic sectors can benefit from export
openings negotiated in the proposed TPP with the growing Asian economies.

71 Prepared by Remy Jurenas, Specialist in Agricultural Policy, Resources, Science and Industry Division.
Congressional Research Service
42

Canada-U.S. Relations

Background and Analysis
According to the World Trade Organization, Canada in recent years has introduced an agricultural
policy framework that includes a number of business risk management measures designed to
partially compensate producers for revenue or income losses arising from low commodity prices,
increased production costs, reduced production, or natural disasters. However, the supply
management systems for dairy, poultry, and eggs “remain unchanged.”
National bodies and provincial commodity marketing boards, granted statutory powers by the
federal and provincial governments, control the supply management systems for these
commodities. At the national level, the amount of each commodity that producers can market is
controlled by a quota system. Imports of each commodity are limited by tariff rate quotas. These
allow a specified amount to enter annually under Canada’s trade commitments at little or zero
duty, but apply a very high tariff on imports above the specified level or quota amount. Both tools
work together to control the supply of each commodity, but the objective is to ensure that
producers receive a price that guarantees them a return that covers their production costs. The
quota is set to balance supply with demand at that price, and is frequently adjusted to ensure that
this balance is achieved. Producers of these commodities must participate in their respective
supply management systems, with farm-level production subject to individual quota limits that
can only be sold into permitted marketing channels.
Supply management for dairy is divided into a nationally-managed system for industrial milk
(used to manufacture dairy products such as cheese and butter) and provincial-level systems for
the marketing of fresh milk. The Canadian Milk Supply Management Committee (CMSMC)
oversees the national system for industrial milk. It is chaired by the Canadian Dairy Commission
(CDC), a federal agency that provides a framework for federal-provincial participation. The
CMSMC determines the national domestic supply of industrial milk and allocates this volume
among provinces.
The Farm Product Council of Canada (FPCC) oversees four national marketing agencies for
poultry (chicken and turkey) and eggs that seek to balance the interests of stakeholders from
producers to consumers. These agencies (Chicken Farmers of Canada, Turkey Farmers of
Canada, Egg Farmers of Canada, and Canadian Hatching Egg Producers) are managed by
representatives primarily from provincial commodity boards plus a few members representing
processors and consumer associations. The provincial commodity boards regularly consult with
their stakeholders to determine their poultry and egg needs. This information is used to set the
national production level, which the agencies implement under a quota order that the FPCC must
approve. Each provincial board allots its share of each quota to registered producers, and
negotiates producer selling prices with processors.
Producers of these commodities point out the benefits of the supply management approach, which
they say has significantly reduced price volatility. The stability of prices over time, combined
with the guarantee that covers production costs, has served to provide income support. Others
point out that these features have resulted in the lack of market orientation for these commodities,
as the value of supply management has become capitalized, or incorporated, into the value of the
quota. In other words, those who hold quota (i.e., renting it out) benefit more than the producers
themselves. Public debate on the future of supply management has gained momentum in the last
few years, but Canada’s government remains steadfast in supporting this policy which benefits
the producers of these three commodities and those provinces in which they are concentrated.
Congressional Research Service
43

Canada-U.S. Relations

Status of the Issue
In October 2012, Canada joined other countries already negotiating the proposed TPP. Attention
since has focused on how Canada’s supply management systems for dairy, poultry, and eggs
could be affected by this prospective trade agreement. Leading up to this announcement, Prime
Minister Harper stated that Canada will not negotiate this issue in order to gain entry, and
remained non-committal on how supply management would be handled if Canada is welcomed as
a TPP participant. He stated that Canada expects to negotiate and debate “all manner of issues” if
it were to join the TPP. If that occurs, he said Canada would attempt to “promote and to defend
[its] interests not just across the economy, but in the individual sectors as well.” President Obama,
when asked whether Canada would have to drop supply management in order to join the TPP,
reportedly only hinted in his response that Canada may have to make some adjustments in this
area.
Though U.S. firms export dairy and poultry products to Canada, the import quotas in place under
supply management have significantly limited access to this next-door market. Now that Canada
is a TPP participant, the National Milk Producers Federation (NMPF), representing U.S. dairy
farmers and dairy cooperatives, and the U.S. Dairy Export Council, representing this sector’s
export interests, want to secure complete free access for U.S. dairy exports into Canada, among
other TPP objectives. Both groups also want to see U.S. negotiators tackle outstanding and
proposed non-tariff measures that have limited, and could limit, access for U.S. fluid milk and
cheese in the Canadian market.
One sign of the pressures that Canada’s TPP negotiators face is the negative reaction expressed by
its dairy producers to the preferential access for specialty cheeses that Canada provided to the
European Union (EU) in their free trade agreement concluded in October 2013. The Dairy
Farmers of Canada stated it will not support this deal, claiming that subsidized cheese from the
EU will displace domestic production of its fine artisan and local cheeses that the industry has
worked hard to develop. Acknowledging that “minor compromises” were made that will affect
the cheese sector, Harper stated his commitment to compensate producers for any losses and
highlighted that his government “kept the principle and the basis of the supply management
system.” Earlier, an NMPF official commented that the cheese market access granted the EU
“falls far short” of what U.S. dairy producers seek to obtain from Canada in the proposed TPP.
Questions
1. Most of the support for Canada’s supply management systems is concentrated in Ontario,
Quebec, and the Maritime provinces. What would be the internal politics associated with
completely changing these systems or modifying them to allow for increased imports of dairy and
poultry products from the United States and other TPP countries?
2. How strong is support among other Canadian economic sectors for maintaining Canada’s
supply management programs?
3. Could Canada ensure that the objectives of supply management (stable prices and income
support to producers) are met if additional imports are allowed? Please elaborate on why or why
not this would be the case.
Congressional Research Service
44

Canada-U.S. Relations

Country of Origin Labeling72
Issue Definition
Mandatory country-of-origin labeling (COOL) in the United States for specified agricultural
products took effect on March 16, 2009. This was the culmination of a near decade-long
legislative effort to arrive at an accommodation that addressed the concerns of competing
interests. U.S. food retailers are now required to label the country of origin for fresh produce
(fruits and vegetables), meats, nuts, and seafood, among other products. As the U.S. meat
processing sector geared up to implement COOL, U.S. imports of Canadian cattle and hogs
noticeably declined and have remained below pre-2009 levels. Concerned that this development
adversely affected their livestock sectors, Canada along with Mexico pressed their case using the
World Trade Organization (WTO) dispute resolution process. The WTO panel handling this case
found that COOL with respect to meat labeling violates international trading rules. The United
States appealed these findings, but the WTO appellate body largely upheld them and called on the
United States to bring COOL into compliance with all WTO findings.
Background and Analysis
Under the Tariff Act of 1930, as amended, most unprocessed agricultural commodities had long
been exempt from requirements that every import be clearly marked to indicate country of origin
for the “ultimate purchaser.” However, provisions in the 2002 farm bill (Section 10816 of P.L.
107-171) require that retailers covered by the Perishable Agricultural Commodities Act (i.e.,
those which deal in at least $230,000 per year in produce—fresh and frozen fruits and vegetables)
begin to provide such information. Other covered commodities specified in the 2002 farm bill
were ground and muscle cuts of beef, lamb and pork; seafood; and peanuts. Labeling is not
required if these commodities are ingredients in processed foods, or if they are sold in dining-out
settings.
Passage of the initial COOL provisions in 2002 did not end debate over the value and efficacy of
mandatory COOL, particularly with regard to meats. COOL opponents argued that record-
keeping and verification costs will far exceed any perceived economic benefits to producers; that
smaller-sized farms and firms will have the most difficulty with compliance; that little evidence
exists showing consumers actually want labeling; and that COOL is a protectionist policy that
undermines free trade. Supporters of COOL countered that compliance would not be nearly as
burdensome as some large industry groups and USDA have portrayed it; that studies show U.S.
consumers, if offered a clear choice, will pay extra for fresh foods of domestic origin, thereby
strengthening demand and prices for them; and that consumers have a right to know where their
foods were produced. They pointed out that all but two of the North American cases of “mad
cow” disease (bovine spongiform encephalopathy, or BSE) occurred in Canadian-born cattle, yet
the United States is permitting the import of large quantities of Canadian beef and cattle. (COOL
opponents argue that country of origin labeling is a matter of marketing, not food safety, and that
food safety concerns are best addressed through science-based regulation.)

72 Prepared by Remy Jurenas, Specialist in Agricultural Policy, Resources, Science and Industry Division.
Congressional Research Service
45

Canada-U.S. Relations

Initially scheduled to take effect on September 30, 2004, Congress postponed COOL
implementation until September 30, 2008, for all but seafood, because of ongoing debate. Some
issues were addressed in talks held among key players during consideration of the 2008 farm bill,
and incorporated into Section 11002 of the Food, Conservation, and Energy Act of 2008, P.L.
110-246. These provisions retained the implementation schedule, and added other commodities
(chicken meat, goat meat, ginseng, pecans, and macadamia nuts) to its coverage. However,
several new types of label categories were created to facilitate and simplify compliance in
specifying the country or countries of red meat products. For all covered commodities, the
amended law also eased recordkeeping and verification requirements, and lowered non-
compliance penalties.
Status of the Issue
Following enactment of the amended COOL provisions, the U.S. Department of Agriculture
(USDA) moved quickly to issue rules to implement them. The August 2008 interim rule for meat
labeling requirements generated the most controversy, in large part because of the steps that U.S.
feeding operations and packing plants took to segregate, hold, and slaughter foreign-origin
livestock (e.g., from Canada and Mexico) from U.S. livestock. With U.S. bilateral trade
agreements with Canada and Mexico having led to free trade in livestock and resulting in a more
integrated North American livestock sector, imports of live cattle and hogs from both countries
became subject to mandatory COOL. In December 2008, Canada filed a request for formal WTO
consultations on COOL with the United States, expressing concern about changes in normal
livestock trade flows in reaction to the interim rule and questioning COOL’s legality under
international trade rules. Bilateral consultations were held twice, but failed to resolve differences.
In October 2009, Canada requested the establishment of a WTO dispute settlement (DS) panel to
review its claims. In November 2009, the WTO agreed to establish a panel to examine this and
Mexico’s nearly identical case on COOL.
Canada asserted that COOL is inconsistent with several WTO-related trade commitments,
including those providing that imports must be treated no less favorably than products of
domestic origin; that laws on marks of origin should not damage imports, reduce their value, or
unreasonably increase their cost; and that laws, rules, and procedures on country of origin should
not themselves create or disrupt international trade. Canadian officials stated that the COOL
requirements are “so onerous” that Canadian exporters of cattle and hogs were discriminated
against in the U.S. market. U.S. officials regretted that consultations did not resolve Canada’s
concerns, and stated their belief that U.S. implementation of COOL provides consumers with
information that is consistent with WTO commitments. They noted that countries had agreed that
country of origin labeling was legitimate policy long before the WTO was created, and that other
countries (including Canada) also require goods to be labeled with their origin.
In November 2011, the WTO Dispute Settlement (DS) panel found that COOL treats imported
livestock less favorably than like U.S. livestock (particularly in the labeling of beef and pork
muscle cuts), and does not meet its objective to provide complete information to consumers on
the origin of meat products. The panel reached these conclusions by examining the economic
effects of the measures taken by U.S. livestock producers and meat processors to implement
COOL, and by accepting arguments that the labeling of meat, indicating where the multiple steps
of livestock birth, raising, and slaughtering occurred, is confusing.
In March 2012, the United States appealed the DS panel’s report to the WTO Appellate Body
(AB). In June 2012, the WTO’s AB upheld the DS panel’s finding that the COOL measure
Congressional Research Service
46

Canada-U.S. Relations

discriminates against imported Canadian cattle and hogs, and imported Mexican cattle, but
reversed the finding that COOL does not fulfill its legitimate objective to provide consumers with
information on origin. The Obama Administration welcomed the AB’s affirmation of the U.S.
right to adopt labeling requirements to inform consumers of the origin of the meat they purchase.
Participants in the U.S. livestock sector had mixed reactions, reflecting the heated debate on
COOL that has occurred over the last decade.
To meet the May 23, 2013, deadline for the United States to comply with the adopted WTO
finding, USDA issued a final rule requiring that labels show where each production step (i.e.,
born, raised, slaughtered) occurs and prohibiting commingling of muscle cut meat from different
origins. COOL’s supporters applauded the final rule for providing consumers with specific and
more useful information on origin. Domestic opponents decried the rule, arguing that it is more
discriminatory than the previous rule and imposes additional recordkeeping burdens on
processors and retailers, and in turn, additional costs on consumers. In July 2013, COOL
opponents filed suit to stop USDA from implementing the final COOL rule. The U.S. District
Court in D.C. will next hear arguments from all sides in early January 2014.
Canada and Mexico expressed disappointment with the final rule, and argue that it does not bring
the United States into compliance with its WTO obligations. In August 2013, Canada and Mexico
requested that a WTO compliance panel be created to determine if the final COOL rule complies
with WTO findings. Formed in late September, this panel is now considering all three countries’
arguments. Depending on the outcome of the compliance ruling(s), possible appeals, procedural
timelines, and whether or not the case progresses to the retaliation phase and arbitration, the WTO
COOL case may not be concluded before 2015.
Opponents have signaled their intent to use the current farm bill conference to seek to repeal or
amend COOL to address their concerns about the final rule and to head off the prospect of trade
retaliation if the WTO compliance panel rules against the United States. Supporters of the USDA
rule argue that U.S. policy makers should not act prematurely to consider any changes to COOL,
until the WTO compliance phase runs its course.
Questions
1. Reports in meat trade publications have suggested that the COOL requirements have strained
marketing relationships between Canadian and U.S. livestock producers and meat processors.
What economic adjustments, if any, have occurred in Canada’s beef and pork sectors in response
to the decrease in Canadian cattle and hog exports to the United States? To what degree have
other market developments (e.g., exchange rates, impact of the economic recession, meat exports
to third markets) affected the beef and pork sectors in both markets?
2. How does Canada’s country of origin labeling program for agricultural commodities and food
products compare to that implemented under the U.S. COOL program? Is it a voluntary or
mandatory program?
3. What impact, if any, does COOL have on the availability of livestock for slaughter in the
United States, and in turn, on the U.S. price of beef and pork?
Congressional Research Service
47

Canada-U.S. Relations

Intellectual Property Rights73
Issue Definition
The United States remains concerned about Canada’s protection and enforcement of intellectual
property rights (IPR)—legal rights in various forms (e.g., copyrights, trademarks, and patents) to
protect innovations and encourage creative output. The treatment of intellectual property is
important to U.S.-Canada relations because of the value of intellectual property to the two
national economies, as well as their high levels of bilateral trade and integration of supply chains.
U.S. stakeholders express concern about counterfeiting and piracy in Canada, as well as the
transit of IPR-infringing products across Canada’s borders. Areas of bilateral engagement on IPR
include Canada’s efforts to reform its copyright and IPR enforcement systems.
Background and Analysis
Canada and the United States have entered into a range of IPR commitments. Multilaterally, they
are signatories to the 1995 World Trade Organization (WTO) Agreement on Trade-Related
Aspects of Intellectual Property Rights (“TRIPS Agreement”), which sets minimum standards for
the protection and enforcement of various types of intellectual property. In 1997, both countries
ratified the World Intellectual Property Organization (WIPO) Copyright Treaty and Performance
and Phonograms Treaty (“WIPO Internet treaties”), which focus on IPR protection and
enforcement in the digital environment. The United States implemented the WIPO Internet
treaties in 1998 through the Digital Millennium Copyright Act (DMCA) (P.L. 105-304). In
contrast, Canada did not act upon the treaties until November 2012, when it enacted the
Copyright Modernization Act (Bill C-11). This followed legislative efforts in Canada over
multiple years to overhaul the country’s copyright regime to bring domestic law in line with
international standards. Canada’s prior lack of passage of a bill to implement the WIPO Internet
treaties was a major sticking point in bilateral relations.
At the regional level, IPR commitments exist in the North American Free Trade Agreement
(NAFTA). Canada and the United States also are participating in negotiations on a Trans-Pacific
Partnership (TPP) free trade agreement (FTA), which feature discussion on IPR issues such as
digital copyright enforcement, pharmaceuticals, and trade secrets. Canada may wish to join the
U.S.-EU negotiations of a Transatlantic Trade and Investment Partnership (TTIP) FTA, which is
in early stages, but also expected to address IPR issues. However, prospects for the future
expansion of TTIP negotiation parties are unclear. In addition, Canada and the United States
participated in negotiations on the Anti-Counterfeiting Trade Agreement (ACTA), an international
agreement intended to build on the TRIPS Agreement. ACTA negotiations concluded in 2010, but
the agreement’s entry-into-force is uncertain, given the European Parliament’s rejection of it in
2012 amid widespread protests by advocates of Internet free speech. ACTA requires formal
approval by six parties in order to enter to force; to date, Japan is the only party that has
submitted a formal instrument of approval. Nevertheless, the U.S. 2013 Trade Policy Agenda
highlights ACTA entry-into-force as a top U.S. trade priority. While the EU initially sought to
have ACTA-like provisions in the Canada-EU Comprehensive Economic and Trade Agreement

73 Prepared by Shayerah Ilias Akhtar, Specialist in International Trade and Finance, Foreign Affairs, Defense, and
Trade Division.
Congressional Research Service
48

Canada-U.S. Relations

(CETA), concluded in October 2013, these provisions were ultimately dropped following the
European Parliament’s opposition. It is possible that ACTA-like provisions could be incorporated
into the proposed TPP.
Bilaterally, a key area of engagement is Canada’s enforcement of IPR. Presently, the Canada
Border Services Agency (CBSA) is not authorized to seize products at the border that are
believed to be pirated or counterfeit, without a court order, which requires detailed information.
The United States contends that this lack of ex-officio authority limits Canada’s ability to
effectively enforce IPR. The United States also contends that the enforcement penalties imposed
by Canada do not serve as sufficient deterrents for future IPR infringement. In October 2013, the
Combating Counterfeit Products Act (Bill C-8) was reintroduced in the Parliament to bolster
Canada’s IPR enforcement. The bill would provide Canadian customs officials with ex-officio
authority
to seize pirated and counterfeit goods at the border, among other things. Some
stakeholders considered Bill C-8 as a way for Canada to implement the enforcement standards of
ACTA.
U.S. concerns with Canada’s IPR system are reflected in the “Special 301” report annually
published by the Office of the U.S. Trade Representative (USTR). In 2013, USTR moved Canada
from the Special 301 “Priority Watch List” (a designation of criticism for a country’s inadequate
IPR protection and enforcement) to the “Watch List” (a milder category of criticism) because of
positive developments, particularly Canada’s enactment of legislation to bring its copyright laws
in compliance with the WIPO Internet treaties and introduction of legislation designed to
strengthen IPR border enforcement. At the same time, USTR cited the continued problem of
pirated and counterfeit goods entering the integrated supply chain between the two countries, as
well as issues with Canada’s administrative process for appeals of the regulatory approval of
pharmaceutical products. USTR also noted concern about Canadian courts’ recent decisions
regarding the heightened “utility” requirement for pharmaceutical patents. U.S. pharmaceutical
companies argue that such decisions contribute to an uncertain business environment in Canada.
For example, one U.S. pharmaceutical company challenged Canada under NAFTA’s Chapter 11
investor-state dispute settlement mechanism, based on a Canadian court’s decision to invalidate
the company’s patent. Canada had been identified on the Priority Watch List since 2008, and
previously had been on the Watch List since 1985. Some defenders of Canada’s IPR regime assert
that the Special 301 process is overly industry-driven, while some industry groups maintain that
Canada’s Special 301 placements reflected material inadequacies in Canada’s IPR regime.
Status of the Issue
While Canada’s passage of the Copyright Modernization Act and the introduction of the
Combating Counterfeiting Products Act in the Parliament are viewed as positive developments,
the United States remains concerned about Canada’s IPR environment, such as in the areas of
border enforcement and treatment of patents. Prospects for ACTA’s overall entry-into-force
remain uncertain, but Canada and the United States remained engaged on IPR issues in the TPP
negotiations.
Questions
1. What progress has been made in implementing the Copyright Modernization Act? How could
Canada’s implementation of the WIPO Internet treaties differ from the DCMA?
Congressional Research Service
49

Canada-U.S. Relations

2. What steps has Canada taken to promote international IPR protection and enforcement? What
are Canada’s top IPR priorities in its FTA negotiations? How does Canada view new and
emerging IPR issues and challenges, such as the protection and enforcement of trade secrets?
3. What are the opportunities and challenges that Canada sees in ratification of the ACTA? What
is Canada’s status with respect to ratification of the ACTA?
4. What measures is Canada currently taking to address trade and transshipment of pirated and
counterfeit goods? What steps can Canada take to improve IPR border and domestic
enforcement? How could the United States support Canada’s efforts?
5. Please describe Canada’s approach to patent law and recent judicial decisions regarding
requirements for patent validity. What are the implications for Canada’s innovation and
investment climate?
6. How does Canada view the U.S. Special 301 process? How does the change in Canada’s
placement from the Priority Watch list to the Watch List affect Canada-U.S. trade relations?
Electric Reliability, Trade, and Access to Renewable
Power
74
Issue Definition
The electric power grids of the United States and Canada are physically connected. Consequently,
electric power reliability problems can easily cross the international border. This was
demonstrated by the 2003 power blackout, which originated in Ohio and eventually spread into
eastern Canada and the northeastern United States. The United States and Canada are therefore
mutually dependent for the reliable operation of their common electric power systems. The
interconnected grid also creates opportunities for trade and joint expansion of the use of
renewable power.
Background and Analysis
There are three components of electric power delivery: generation by power plants, transmission
over long distances by high voltage power lines, and final delivery over low voltage distribution
lines to end-users. The transmission lines that constitute the North American power grid cross
state and international boundaries. The U.S. and Canadian electricity grids are linked by physical
ties and operational economics:
• At the broadest level of organization, the North American grid is divided into
regional “interconnections” within which power moves freely (the links among
the regions are very limited). The large Eastern and Western Interconnections
cover most of the contiguous United States and the heavily populated regions of
Canada.

74 Prepared by Richard Campbell, Specialist in Energy Policy; Resources, Science, and Industry Division.
Congressional Research Service
50

Canada-U.S. Relations

• At the level of major transmission lines, the Canadian grid has evolved by
building south from heavily populated areas to connect with U.S. generation and
load. Consequently, while the grid in the conterminous United States is a web
crisscrossing the lower 48 states, the Canadian backbone system consists of
north-south lines closely linked to the United States. More electricity actually
moves north and south between the United States and Canada than east and west
among Canadian provinces.
• In terms of system reliability, as discussed further below, the North American
Electric Reliability Corporation (NERC) has responsibilities for the reliable
operation of the power grid in both countries. Three of the eight regional
reliability entities through which NERC performs much of its work extend from
the United States into Canada and cover the latter’s entire southern tier.
Reliability
In reaction to the 2003 blackout, the Energy Policy Act of 2005 (P.L. 109-58) required the Federal
Energy Regulatory Commission (FERC) to designate an Electric Reliability Organization (ERO)
charged with ensuring the reliability of the bulk power system, largely by issuing mandatory
reliability standards. In 2006, FERC selected NERC for this role. NERC is an electricity industry
organization whose reliability recommendations had been voluntary prior to its designation as the
ERO. NERC’s members include Canadian power companies, and it has memoranda of
understanding (MOUs) with Canadian provinces and the Canadian federal government to help
coordinate reliability activities. However, NERC does not have the same statutory authority in
Canada as in the United States. The MOU between the Canadian National Energy Board (NEB)
and NERC recognized NERC as the ERO for the Canadian part of international transmission lines
but not for lines located entirely within Canada’s borders (which are under provincial, not federal,
regulation). NERC currently has agreements with most Canadian provinces that make, or will
make in the future, NERC’s reliability standards mandatory and enforceable. NERC’s standards
also cover critical infrastructure protection (including measures to enhance the cybersecurity of
the grid).
Transmission capacity and congestion issues that can impair reliability and increase power costs
exist in the United States and Canada, and the solution is often to construct new transmission
capacity or enhance existing facilities. Many transmission projects are under construction or
planned in both nations. However, transmission planning and construction in the United States
and Canada face similar challenges, particularly for long-distance projects. These challenges
include permitting and siting approvals that often involve multiple jurisdictions, and finding the
funding for the large investments in transmission (and power generation) that will be needed to
meet demand growth. A few international transmission projects of note include:
• The Montana-Alberta Tie Line (which entered service in September 2013) was
the first transmission link between that state and province. It is a 214-mile,
US$213 million merchant project, which will facilitate the development and
export of wind power in both regions. It is also expected to improve transmission
system reliability. The project received a US$161 million loan under the
American Recovery and Reinvestment Act (P.L. 111-5).
• The Northern Pass project is a proposed high capacity transmission line to ship
up to 1,200 megawatts of hydroelectric power from Québec to New England.
Although this project has received preliminary approval from the U.S. Federal
Congressional Research Service
51

Canada-U.S. Relations

Energy Regulatory Commission, its future is uncertain because declining power
prices in the United States (linked to low natural gas prices) may make the
project uneconomical for the Canadian partner in the venture, the large utility
Hydro-Québec. However, the U.S. Department of Energy continues to hold
public scoping meetings in affected communities along the U.S. route as part of
the federal permitting process.
Other transmission projects include the Minnesota Power-Manitoba Hydro agreement to
accommodate sales of hydropower to the United States, and the Champlain Hudson Power
Express, a merchant line to bring hydropower and wind power from Québec to the New York City
area.
Authorities in both Canada and the United States are monitoring space weather. The Sun is
entering an especially active period for solar storms. Northern latitudes are more susceptible to
extreme space weather caused by solar storms. These storms could induce geomagnetic induced
currents which can adversely affect bulk power system components such as transformers, or
cause voltage instability and power system collapse.
Trade and Renewable Energy Development
The United States is a net importer of electricity from Canada, and imports had been increasing,
from 42.7 terawatt-hours (Twh) in 2006 to 50.3 Twh in 2007 and 56.0 Twh in 2008. Imports
briefly decreased from 51.8 Twh in 2009 to 44.4 Twh in 2010, but have rebounded to 51.4 Twh in
2011 and 57.9 Twh in 2012. From the U.S. perspective, while these imports can be locally
important (e.g., in New York and New England), on a national basis they are very small,
equivalent to 1.3% of net U.S. electric power generation (approximately 4,106 Twh) in 2011.
Electricity trade is more significant from Canada’s standpoint. Canada generated 595 Twh of
electricity in 2012, with exports to the United States representing about 10% of Canada’s
domestic generation.
The United States relies on coal for about half its electricity production, while Canada derives
about 75% of its electricity from non-fossil fuel sources (i.e., hydropower, nuclear, and wind
energy). The United States and Canada have both proposed regulations to address greenhouse gas
(GHG) emissions from fossil fuel-based power generation. Canada plans to produce 90% of its
electricity from “non-emitting” sources such as hydro, nuclear, clean coal (i.e., coal plants
capable of carbon capture and storage), or wind power by 2020. Electricity trade between the
countries is likely to become intertwined with renewable energy development and transmission
planning issues. Both nations currently have policies for the increased use of renewable power.
The United States and Canada have established a “Clean Energy Dialogue” (CED) to facilitate
the development of low carbon energy sources. Elements of the CED include, among other
things, collaboration on expansion and modernization of the North American transmission grid to
improve reliability and facilitate trade in low carbon power; advancement of smart grid
technology; and development of electricity storage technology.
Canadian sources of renewable power may have the potential to reduce the need to build new,
long-distance transmission projects (which can take up to a decade or more to permit and
construct) in the United States. For example, imports of hydropower from Québec into New
England and New York, using new but relatively short power lines, have been suggested by the
transmission system authorities in those regions as an alternative to building power lines to
Midwestern wind farms. However, as discussed above, at least one of these projects has been
Congressional Research Service
52

Canada-U.S. Relations

thrown into question by declining natural gas and power prices. Disputes at the state or provincial
level can also complicate energy project development. The potential development of new gas
resources (i.e., from coal bed methane and tight shale formations) in both the United States and
Canada could have a major impact on technology and energy choices in both countries.
In the United States, the intersecting issues of renewable power development, transmission
system expansion and reliability, and long-standing difficulties in multi-state permitting of new
projects, has spurred suggestions for new regulatory and planning processes. The planning
element of some proposals envisions creating transmission “master plans” on a wide geographic
scope to facilitate renewable energy development and other purposes. While these proposals are
limited to planning within the United States, they will inevitably have an impact on Canada
because of the grid connections and the much larger size of the U.S. power system.
In June 2013, Canada lost an appeal at the World Trade Organization (WTO) in a ruling on
incentives the province of Ontario had established for the production of renewable electricity.
Japan and the European Union (EU) brought the case over a “feed-in tariff” which offered above-
market prices for electricity supplied by renewable energy, but only offered the premium to firms
that bought most of their equipment locally. The appeal decision revised some of a ruling in late
2012 in which Japan and the EU had won most of the case, leaving in place the key finding that
Ontario’s incentives were illegal because they discriminated against foreign firms. A
spokeswoman for Canada’s federal trade ministry said the government would work with
provincial authorities to respond to the WTO’s final ruling. Ontario will have to bring its rules in
line with the WTO rules or risk trade sanctions. The United States filed a third-party submission
supporting the claims that Ontario’s program violated WTO rules, and has a similar WTO
complaint pending against India for local content preferences which are alleged to impact U.S.
suppliers of thin films used in solar photovoltaic modules.
Status of the Issues
NERC and FERC are continuing a process of developing and implementing mandatory reliability
standards for the grid, with cybersecurity a growing concern. In Canada, the National Energy
Board is reportedly working with provincial authorities on implementation of mandatory
reliability standards, although it is not clear if in all cases these will be the same as the NERC
standards or whether NERC will function as the ERO in every province. Proposed regulations to
address greenhouse gas emissions in both Canada and the United States may create increased
demand for renewable electricity, even with the increasing production of natural gas. Legislation
is currently being discussed in the U.S. House of Representatives to update and streamline the
permitting process for cross-border energy infrastructure projects, which is currently based upon
several presidential executive orders.
Questions
1. Will all Canadian federal and provincial regulators approve and enforce NERC electric
reliability standards? Without compatible standards in the United States and Canada, the
reliability of the electric power system could be reduced.
2. Given that the United States and Canadian power grids are integrated, what steps should be
taken to coordinate transmission planning and development of smart grid protocols? Is this an
area for NERC to establish a formal leadership role?
Congressional Research Service
53

Canada-U.S. Relations

3. How can the United States and Canada effectively resolve energy development issues that may
involve both federal and state/provincial authorities? Given the likelihood for increasing energy
integration, should a formal bi-national body be instituted to oversee energy trade opportunities
and energy security issues?
4. How might Canadian and U.S. regulatory initiatives to reduce GHG emissions impact plans for
increasing Canadian exports of renewable electricity to the United States, rather than reserving
these resources for domestic consumption?
U.S. Energy Security and Canadian Oil Sands75
Issue Definition
Canada ranks as the United States’ number one source of imported crude oil and thus plays an
important role in U.S. energy security. Canada’s oil sands make up an increasing proportion of its
petroleum resources, and Canada’s oil sands producers continue to look primarily to the United
States as the major market for their oil exports. Of the approximately 3.1 million barrels per day
(mbd) of crude oil Canada has exported to the United States during the first half of 2013, almost
60% is delivered to the Midwest. This region’s capacity to process increasing volumes of
Canadian crude oil is limited in the near term. However, planned refinery expansion coupled with
new refinery and infrastructure construction may place the region in a position to receive
increased oil exports from Canada in the longer term. Another possibility for processing
additional Canadian oil is expanded access to refineries along the U.S. Gulf coast, which is likely
to require expanded pipeline capacity.
Although U.S. refinery capacity is forecast to increase from about 17.3 mbd in 2013 to nearly
19.0 mbd in 2030—a 1.7 mbd increase, the deteriorating economics of the refining industry may
bring these projections into question. Since 2009, the U.S. refining industry has been
characterized by plant closures and divestiture. Actual, as well as projected, capacity expansion
may not be enough to keep up with Canada’s projected increase in oil sand production, especially
if the investment climate continues not to warrant expansions to include upgrades for heavy oil
processing. Canada is also pursuing additional refinery capacity for its heavier oil. Refinery
expansions to accommodate heavy oils are likely to have environmental effects, and Congress
may continue to face controversy over the balance between energy economic and environmental
goals. In addition, investment and production plans are likely to be altered by the reduced demand
for petroleum products in the United States, associated with high prices and the ongoing effects of
the economic recession that began in the last quarter of 2007.
Another possible impediment to expanded Canadian oil use is Section 526 of the Energy
Independence and Security Act of 2007 (P.L. 110-140), which prohibits federal procurement of an
alternative or synthetic fuel “unless the contract specifies that the lifecycle GHG emissions are
less than or equal to such emissions from the equivalent conventional fuel produced from
conventional petroleum sources.” The provision is intended to ensure that federal agencies are not
spending taxpayer dollars to promote new fuel sources that will exacerbate global warming, and

75 By Robert Pirog, Specialist in Energy Economics, Resources, Science, and Industry Division.
Congressional Research Service
54

Canada-U.S. Relations

would apply to fuels derived from “oil sands,” that some associate with the production of higher
levels of greenhouse gas emissions than fuels derived from conventional, lighter crude oils.
Background and Analysis
When it comes to future oil supplies, production from Canada’s oil sands will likely make up a
larger share of U.S. oil imports. Oil sands account for nearly 50% of Canada’s total oil
production, and oil sand production is increasing as conventional oil production declines. Since
2004, when production from a substantial portion of Canada’s oil sands was deemed economic,
Canada has been ranked third behind Saudi Arabia and Venezuela in proved oil reserves. Canada
has about 175 billion barrels of proved reserves and a total of over 300 billion barrels of
potentially recoverable oil sands (an attractive investment under high oil price conditions,
demonstrated by the billions of dollars already committed to Canadian development). Canadian
crude oil exports (from oil sands and conventional petroleum sources) were over 3.1 mbd during
the first half of 2013, of which 99% was directed to the United States. Canadian crude oil
accounts for about a third of U.S. crude oil imports, and about 17% of all U.S. crude oil and
petroleum products supplied during the first half of 2013. U.S.-based oil companies are major
investors in Canadian oil sands. The infrastructure to produce, upgrade, refine, and transport oil
from Canadian oil sand reserves to the United States is already in place although additional
pipeline capacity is planned, and may be needed. Oil sands production is expected to rise to about
3.6 mbd by 2030.
Greenhouse gas “emissions intensity” (CO2/barrel) from oil sands has been identified as being
significantly higher than that from conventional oil production. Canada’s federal government
classifies the oil sands industry as a large industrial air pollution emitter and expected it to
produce half of Canada’s growth in greenhouse gas (GHG) emissions in 2010. Reducing air
emissions is one of the most serious challenges facing the oil sands industry. Between 1995 and
2004, the oil sands industry reduced its emission intensity by 29% while oil production rose.
Overall, CO2 emissions have declined from 0.14 tons/barrel (bbl) to about 0.08 tons/bbl since
1990. However, Alberta’s GHG goals of 238 megatons of CO2 in 2010 and 218 megatons CO2 in
2020 are not expected to be met.
Status of the Issue
New refinery capacity that would accommodate heavier crude from Canadian oil sands is being
planned for Indiana, Michigan, South Dakota, and elsewhere. Some of these expansions or new
refineries are several years away from operation. The $3.8 billion BP refinery upgrade and
expansion in Whiting, IN, originally with an initial expected completion in 2011, is 95%
complete and the new, expanded distillation facility opened in July 2013. A new $10 billion
refinery in Union County, SD, being planned to process heavy crude from oil sands, continues to
face legal challenges. Environmental groups continue to promote standards for low-carbon
emission fuel and oppose the permitting of these refinery projects on the basis that processing
heavy crude from Canadian oil sands would generate much higher greenhouse gas emissions than
from conventional petroleum sources.
Another impediment to expanded use of Canadian heavy oil in refineries in the United States is
the opposition to the construction of the Keystone XL pipeline, which is designed to deliver up to
900,000 barrels per day of Canadian crude oil to new refining capacity that is expected to be built
in the U.S. Gulf Coast region. Opposition to the project in the United States centers on the
Congressional Research Service
55

Canada-U.S. Relations

inherently high carbon emissions of liquids derived from oil sands, while Canadian opposition is
focused on likely job losses associated with the export of unprocessed crude oil. Unions in
Canada claim that processing the crude oil in Canada, and exporting finished products such as
gasoline and diesel fuel to the United States, would create thousands of high-paying jobs for
Canadian workers.
Questions
1. What changes are necessary to significantly reduce the environmental footprint of heavy oil
from Canadian oil sands?
2. How much capital investment in pipeline and refinery infrastructure, and in what timeframe, is
needed to support increased crude oil imports from Canada?
3. What would be the impact on U.S. federal and defense fuel procurements if Section 526
restrictions remain in place on fuel produced from Canadian oil sands?
4. As a result of the supply bottlenecks and resultant price discounts on Canadian crude oil, how
likely is it that Canadian oil sands development will be slowed because of revised investment
strategies by the major oil companies?
Keystone XL Pipeline76
Issue Definition
In September 2008, TransCanada (a Canadian company) submitted its first application to the U.S.
Department of State for a permit to cross the U.S.-Canada international border with the Keystone
XL pipeline project. If constructed, the pipeline would carry crude petroleum produced from the
oil sands of Alberta, Canada, to a market hub in the United States for further delivery to Gulf
Coast refineries. Because the pipeline would connect the United States with a foreign country, it
requires a Presidential Permit issued by the State Department. Although similar pipelines from
Alberta have been approved in recent years, the permitting process for the Keystone XL pipeline
has become highly controversial. Some Members of Congress have expressed support for the
proposed pipeline’s potential energy security and economic benefits while others have expressed
reservations about its potential environmental impacts. Though Congress, to date, has had no
direct role in permitting the pipeline’s construction, it has an oversight role stemming from
federal environmental statutes that govern the pipeline’s application review process. Legislative
proposals have sought to assert direct congressional authority over permit approval.
Background and Analysis
Canada is the largest supplier of imported crude petroleum to the United States. Of the 8.5 million
barrels per day (Mbpd) the United States imported in 2012, Canada supplied 2.4 Mbpd (28%),
more than the combined imports from the next two largest suppliers—Mexico and Saudi Arabia.

76 Prepared by Paul Parfomak, Specialist in Energy Policy; Resources, Science, and Industry Division.
Congressional Research Service
56

Canada-U.S. Relations

Pipeline infrastructure for Canadian petroleum exports to the United States has been growing
rapidly in support of this trade. Five major pipelines with a combined capacity of 3.3 Mbpd
currently link Canadian petroleum producing regions to markets in the United States. Two of
these pipelines, Alberta Clipper and Keystone, with a combined capacity of just under 0.9 Mbpd
(26% of the total) began service in 2010.
The permit for Keystone XL, which would add an additional 0.8 Mbpd of import capacity, was
denied by the U.S. State Department in January 2012. However, TransCanada subsequently
proceeded with development of the Keystone XL segment connecting Cushing, OK, to the Gulf
Coast as a stand-alone project not requiring a Presidential Permit. TransCanada also reapplied to
the State Department for a Presidential Permit to build the northern, cross-border segment of
Keystone XL. If ultimately approved and constructed, Keystone XL would bring Canada’s total
U.S. petroleum export capacity to over 4.1Mbpd, enough capacity to carry over 48% of U.S.
crude petroleum imports in 2012. Given that Canada actually supplied the United States 2.4
Mbpd in 2012, large increases in Canadian supply will ultimately be possible, although much of
the increased crude supply could be destined for foreign markets. In addition, several large
pipeline projects are proposed within the United States to increase movements of Canadian
petroleum to and from key U.S. market hubs, including refineries in the Midwest and on the Gulf
Coast that employ complex technology in order to process “heavy” crude oils like those from
Canada, Mexico and Venezuela.
The recent trend of expanding petroleum pipelines from Canada, particularly Keystone XL, has
generated considerable controversy in the United States. Proponents of the Keystone XL,
including Canadian government agencies, petroleum industry stakeholders, and pipeline
construction workers, have based their public interest justifications primarily on increasing the
diversity of the U.S. petroleum supply and on expected economic benefits to the United States,
including near-term job creation associated with pipeline construction and operation. Some
contend that the Keystone XL project would secure growing Canadian oil supplies for the U.S.
market, which could offset imports from less dependable foreign sources. They also claim that if
oil sands output cannot flow to the United States, infrastructure to export it to Asia will likely
develop. Opponents to the Keystone XL pipeline project, primarily environmental groups and
affected communities along the route, object to the project principally on the grounds that it
supports “dirty” Canadian oil sands development, that a potential spill could pose a risk to
groundwater, that alternative pipeline routes avoiding environmentally sensitive areas in
Nebraska have not been fully considered, and that it promotes continued U.S. dependency on
fossil fuels. Arguments criticizing the greenhouse gas emissions of oil sands production,
generally, are based to some degree on the assumption that limiting pipeline capacity to U.S.
markets may limit output from Canada’s oil sands. Some opponents also argue that, given the
incremental capacity anticipated in other Canadian petroleum pipelines and through increasing oil
shipments by rail, the Keystone XL project is not needed.
Status of the Issue
On January 18, 2012, the State Department denied the original Keystone XL permit, citing
insufficient time under a 60-day congressional deadline to obtain all the necessary information to
assess the project. On February 27, 2012, TransCanada announced that it would proceed with
development of the Keystone XL in two segments as stated above. The company filed a new
Presidential Permit application in May 2012 for the northern segment of the Keystone XL project.
The southern segment of the original Keystone XL proposal has since been completed.
Congressional Research Service
57

Canada-U.S. Relations

A final State Department decision on the re-filed Keystone XL permit application appears
unlikely before 2014 due to extensive environmental review under the National Environmental
Policy Act (NEPA). President Obama has stated that he would grant the Presidential Permit “only
if this project doesn’t significantly exacerbate the problem of carbon pollution.” Congress may
act to influence this decision in the meantime. The Energy Production and Project Delivery Act of
2013 (S. 17), the Keystone for a Secure Tomorrow Act (H.R. 334), a bill to approve the Keystone
XL Pipeline (S. 582), the Northern Route Approval Act (H.R. 3), and the Job Creation Act of
2013 (H.R. 2674) would all effectively approve the Keystone XL Pipeline. The Strategic
Petroleum Supplies Act (S. 167) would suspend sales of petroleum products from the Strategic
Petroleum Reserve until the pipeline is approved.
Questions
1. Will the State Department approve the reconfigured Keystone XL pipeline?
2. How might the development of the Keystone XL pipeline affect the regional availability and
price of petroleum products in North America?
3. What are the prospects for new Canadian pipelines to Pacific or Atlantic markets and how
might the Keystone XL pipeline affect those?
4. To what extent should the Keystone XL pipeline, added to the other recently constructed oil
pipelines from Canada, require special safety or environmental oversight?
5. How might oil supplies from the Keystone pipeline affect U.S. oil imports from other
countries?
6. What could be the nature and timing of regional economic effects associated with the pipeline’s
construction?
7. What are the market and safety implications of increased oil imports by rail if Keystone XL is
not constructed?
8. What are the climate implications of Keystone XL and how would the project affect U.S. and
Canadian efforts to reduce their emissions of greenhouse gases?

Congressional Research Service
58

Canada-U.S. Relations

Author Contact Information

Carl Ek, Coordinator
Peter J. Meyer
Specialist in International Relations
Analyst in Latin American Affairs
cek@crs.loc.gov, 7-7286
pmeyer@crs.loc.gov, 7-5474
Ian F. Fergusson, Coordinator
Paul W. Parfomak
Specialist in International Trade and Finance
Specialist in Energy and Infrastructure Policy
ifergusson@crs.loc.gov, 7-4997
pparfomak@crs.loc.gov, 7-0030
Richard J. Campbell
Robert Pirog
Specialist in Energy Policy
Specialist in Energy Economics
rcampbell@crs.loc.gov, 7-7905
rpirog@crs.loc.gov, 7-6847
Shayerah Ilias
Marc R. Rosenblum
Analyst in International Trade and Finance
Specialist in Immigration Policy
silias@crs.loc.gov, 7-9253
mrosenblum@crs.loc.gov, 7-7360
James K. Jackson
Rachel Tang
Specialist in International Trade and Finance
Analyst in Industrial Organization and Business
jjackson@crs.loc.gov, 7-7751
rtang@crs.loc.gov, 7-7875
Remy Jurenas
M. Angeles Villarreal
Specialist in Agricultural Policy
Specialist in International Trade and Finance
rjurenas@crs.loc.gov, 7-7281
avillarreal@crs.loc.gov, 7-0321


Congressional Research Service
59