Canada's Agricultural Trade in North America: Do National Borders Matter?

Abstract

Canada and the United States are each other's largest trading partner. Trade in agricultural goods has grown continuously since the signing of the Canada-United States Trade Agreement in 1989. The trade agreement removed most tariffs on traded agricultural goods. However, many nontariff barriers remain. We estimate the border effects for a select group of agricultural commodities and find that the quantity traded is less than would be predicted under free trade.T he Canada-United States Trade Agreement (1989) or CUSTA, and the Uruguay Round Agreement on Agriculture or URAA (1995) are the two major trade agreements affecting the level of agricultural trade between Canada and the United States. 1 The CUSTA removed most of the tariff and nontariff barriers on agricultural trade between the two countries. Some of the more contentious trade issues, such as the operation of the supply-managed system and the Canadian Wheat Board, were left to the URAA negotiations. Barichello et al. reviewed the effect of CUSTA on agricultural trade between the United States and Canada and concluded that trade was far from frictionless, even though many tariffs were lowered and some quantitative restrictions removed.The CUSTA went into effect on January 1, 1989, and was aimed at increasing trade between Canada and the United States by removing tariff and nontariff barriers. CUSTA did not result in a set of harmonized external tariffs for Canada and the United States and thus created a Free Trade Area (FTA) rather than a Customs Union or a Common Market. Those sectors deemed able to compete in the FTA had their tariff protection removed immediately while others had it eliminated over a five-or ten-year period. Trade restrictions were left on some

Agricultural market integration in the OECD: A gravity-border effect approach

“…An analogous estimate for agricultural trade in the OECD does not exist. However Furtan and van Melle (2004), using a traditional gravity equation with a specification very close to column 1, found a border effect even stronger for Canada and US agricultural trade.…”

“…Our focus on agricultural trade is motivated by the fact that while several papers analyzing national border effects in manufacturing sector (see Anderson and van Wincoop, 2004, for a survey) exist, the only paper published on this topic in agriculture is, to the best of our knowledge, that of Furtan and van Melle (2004) who estimate the border effects of the US, Canada and Mexico using a standard gravity model. Furthermore, agricultural products are characterized by high protection levels, complex tariff structures, low transportability and strong 'home bias' in preferences, all factors that induce large border effects.…”

On Border Effect Gravity Model for Agricultural Trade

“…It can be found that the intercepts differ quite a lot in three models: five intercepts in model (2) are all negative and the average of them tends to be greater in absolute value. While the intercept in average in model (3) for four borders is the least in value. But the intercept for every trading pair (200 pairs altogether) ranges from 4.032 to 17.019, indicating the great differences in determining the bilateral trade of each trading pair.…”

“…Dascal et al [2] utilized pooled cross-sectional and time series data in a one-way fixed effects model. Furtan & van Melle [3] applied two traditional border effect gravity models and found the declining and asymmetric border effects for agricultural trade. Olper & Raimondi [4] included multilateral resistance in the model.…”

China-Us Border Effect of Agricultural Trade Using Gravity Model

“…Some have paid attention to border effect of agricultural trade and made conclusion that border effect of agricultural trade is also significantly large among developed countries (Furtan & van Melle, 2004;Olper & Raimondi, 2005;Paiva, 2005). Besides, the border effect studies have been focusing more on advanced developed countries or regions than on developing countries.…”