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February 21, 2024
U.S.-Canada Trade Relations
The United States and Canada have one of the largest
Figure 2. U.S. Crude Oil Imports from Canada
bilateral commercial relationships in the world, including a
highly integrated energy and automotive market. Over the
past 30 years, U.S.-Canada trade relations have been
governed first by the 1989 U.S.-Canada Free Trade
Agreement, then by the 1994 North American Free Trade
Agreement (NAFTA), and now by the 2020 United States-
Mexico-Canada Agreement (USMCA). Congress may
consider the implications of current and potential areas of
dispute and cooperation with Canada ahead of the “sunset”
review of USMCA planned for 2026. For more on U.S.-
Canada relations, see CRS Report R47620, Canada:
Source: CRS, with U.S. Census Bureau data, as presented by Trade
Background and U.S. Relations.
Data Monitor, accessed February 2024.
U.S.-Canada Trade Overview
Digital Services Tax Act. The Canadian government has
Canada is the top U.S. partner for trade in goods and
proposed a 3% digital services tax (DST) on certain
services (see Figure 1). In 2022, Canada exported 77% of
revenue of large digital services providers related, for
its goods to, and imported almost half of its goods from, the
example, to online marketplaces, online advertising, social
United States. As of 2022, the United States is the largest
media platforms, and the sale or licensing of user data. The
source of foreign direct investment (FDI) by stock in
DST would be retroactive to January 1, 2022. The United
Canada, while Canada is the fourth-largest FDI source in
States is home to several of the world’s largest digital
the United States.
services providers, and some Members of Congress have
expressed concerns that DSTs disproportionately impact
Figure 1. U.S.-Canada Trade in Goods and Services
U.S. companies (e.g., H.Res. 268). Prior to Canada’s DST
proposal, in 2019 and 2020, the Office of the U.S. Trade
Representative (USTR) investigated various countries’
DSTs under Title III of the Trade Act of 1974 (19 U.S.C.
§§2411-2420), commonly referred to as “Section 301.”
USTR found these DSTs to be discriminatory towards U.S.
companies and announced, but immediately suspended,
plans for retaliatory action in the form of increased tariffs.
In October 2021, members of the Organization for
Economic Cooperation and Development (OECD)/G20
Source: CRS, with U.S. Bureau of Economic Analysis data.
Inclusive Framework, including the United States and
Canada is the largest supplier of U.S. energy imports—
Canada, agreed on a plan to update the global tax system
including crude oil (see Figure 2), natural gas, and
and develop an international digital tax framework.
electricity—and the second-largest recipient of U.S. energy
Framework members agreed to suspend new DSTs until
exports. Global energy prices were higher overall in 2022
2024 to allow space for further negotiation. Subsequently,
due in part to market instability following Russia’s invasion
USTR terminated the suspended retaliatory tariffs and
of Ukraine. These higher prices contributed to the increased
Section 301 DST investigations. In July 2023, 138 out of
value of U.S. imports from Canada. Canada is a particularly
145 framework members agreed to hold off on imposing
valuable U.S. partner for energy security and climate
DSTs until at least 2025 to allow for additional progress on
objectives because of its reliable oil and gas supply,
ratification. Canada was an exception, stating that it would
relatively low-carbon electricity grid, and shared
not support a DST moratorium without a “firm and
commitments to democracy and environmental standards.
binding” implementation timeline for the agreement. U.S.
Selected Trade Issues
officials have stated that additional discussions are needed
before the United States signs the framework agreement.
U.S. and Canadian officials continue to express differing
Congress is likely to be involved in U.S. implementation of
views on long-standing disputes related to Canada’s dairy
any agreement. Some Members of Congress have argued
and softwood lumber industries. Other areas of discussion
that the framework plan would disproportionately impact
include automotive issues, potential cooperation on critical
U.S. companies and have criticized the lack of
minerals, and Canadian legislation regarding digital
congressional involvement in framework discussions.
services providers, news outlets, and online content.
Canada has not yet implemented its DST; Canadian
officials have indicated that they are discussing the issue
https://crsreports.congress.gov
U.S.-Canada Trade Relations
with U.S. counterparts. Some U.S. industry groups have
Online Streaming Act. Canada’s April 2023 Online
called for a Section 301 investigation if Canada enacts its
Streaming Act (Bill C-11) gives the Canadian Radio-
DST, arguing that the DST may violate USMCA and World
Television and Telecommunications Commission (CRTC)
Trade Organization (WTO) rules. Some Members have
the power to regulate entities that broadcast through social
urged USTR to make clear that it will respond swiftly if
media or online streaming services (e.g., Netflix,
Canada enacts a DST. USTR has stated that it would assess
YouTube). The CRTC could require U.S. companies to
a Canadian DST against the “same standard” as previous
fund and/or promote Canadian content on streaming and
DST investigations.
social media platforms in Canada. Some U.S. companies
and digital content creators expressed concerns about
Automotive and Critical Minerals. USMCA created
increased costs and Canadian government control over
stricter North American content requirements for duty-free
automotive trade (referred to as “
user-generated content and social media algorithms (e.g.,
rules of origin”). Mexico
what content is shown and promoted to users). The
and Canada challenged the U.S. interpretation of the rules
Canadian government has directed the CRTC to exclude
of origin – the United States argued for a stricter approach
social media content creators from the regulations. CRTC is
to calculating North American content, while Mexico and
finalizing implementing regulations for the Online
Canada argued that the three parties had agreed to a more
Streaming Act. The CRTC has stated that it is targeting
flexible interpretation to help North American producers
“late 2024” to implement the new regulations. Congress
meet the content requirements. A USMCA panel decided in
may examine the act’s
favor of Mexico and Canada’s position, and the final report
potential impacts on U.S. companies
and whether the legislation raises concerns under USMCA.
was made public in January 2023. The three countries have
stated that they are continuing to work toward a resolution.
Dairy and Supply Management. Canada supports its
dairy, poultry, and egg sectors by limiting production,
The electric vehicle (EV) tax credit in P.L. 117-169, known
setting prices, and restricting imports (“supply
as the Inflation Reduction Act of 2022 (IRA), also contains
management”). Under USMCA, Canada committed to
North American requirements for EV and battery
provide greater access for U.S. dairy exports through
manufacturing. The EV tax credit requires a certain
limited increases in tariff-rate quotas (TRQs), which allow
percentage of critical minerals to be sourced from the
specified quantities to be imported into Canada at
United States or its free trade agreement partners, including
preferential duty rates. USTR has challenged Canada’s
Canada. Canada is a top source for U.S. imports of key
critical mineral inputs for EV batteries. Canada’s
dairy TRQs twice under USMCA. The United States won
critical
the first case in December 2021. In the second case, in
minerals strategy details plans to further increase its critical
November 2023, a majority of the panel ruled in favor of
minerals production in a sustainable manner and develop
Canada. U.S. officials and some Members of Congress
higher-value parts of the supply chain, such as mineral
expressed disappointment in the decision, which cannot be
processing, battery manufacturing, and recycling. In March
appealed. Some Members have urged USTR to explore next
2023, the United States and Canada launched a one-year
steps and called for a congressional briefing. At the same
Energy Transformation Task Force and a Joint Action Plan
time, some Members have called on USTR to pursue new
on Critical Minerals Collaboration to promote an integrated
U.S. dairy market access opportunities in other countries.
approach towards critical supply chains, including EVs,
batteries, and critical minerals. Canada is also a member of
Softwood Lumber. The United States and Canada have
the U.S.-led Minerals Security Partnership, which
had a decades-long dispute over trade in softwood
encourages public and private sector coordination on
lumber—primarily used in residential construction,
critical minerals investments.
remodeling, and repair. The last agreement governing U.S.-
Congress may continue to monitor the implementation and
Canada softwood lumber trade, the 2006 Softwood Lumber
economic impacts of the USMCA automotive rules of
Agreement, expired in October 2015. Since the agreement’s
origin and the IRA EV tax credit, and U.S.-Canada
expiration, the United States has imposed antidumping
cooperation on critical supply chains.
(AD) and countervailing duties (CVD) on imports of
Canadian softwood lumber. Canada has filed challenges
Online News Act. Canada’s Online News Act (Bill C-18),
against the AD/CVD duties through NAFTA, USMCA, the
which went into effect on December 19, 2023, allows
WTO, and the U.S. Court of International Trade. Congress
Canadian news outlets to collectively bargain with digital
may consider whether a new lumber agreement is necessary
platforms (e.g., Google, Meta) regarding payments for the
and how a potential agreement might impact U.S.
use of news content. The act also establishes a mandatory
producers. Congress may also consider the economic
arbitration framework in the event that news outlets and
impacts of lumber duties on U.S. consumers.
digital platforms cannot reach a payment agreement. The
Issues for Congress
Canadian government contends that the act ensures fair
sharing of revenue (e.g., from digital advertising) between
Congress may be interested in monitoring USMCA
news outlets and digital platforms. Some U.S. companies
implementation and Canada’s compliance with USMCA
have negotiated payment agreements with the Canadian
commitments. Congress may also consider whether or not
government, while others have stopped displaying news
to engage with Canada at the congressional/parliamentary
content through their platforms in Canada. Some Members
level to discuss pathways to address bilateral irritants and
of Congress have introduced legislation (e.g., S. 1094)
deepen cooperation in key supply chains.
similar to Bill C-18. Other Members have expressed
Kyla H. Kitamura, Analyst in International Trade and
concerns that the act may unfairly target U.S. companies
and violate USMCA.
Finance
https://crsreports.congress.gov
U.S.-Canada Trade Relations
IF12595
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https://crsreports.congress.gov | IF12595 · VERSION 1 · NEW