This study's primary objective is to evaluate empirically the economic effects of the U.S.-Canada Free Trade Agreement (FTA). The paper emphasizes bilateral trade flows of agricultural and industrial products between the United States and Canada, given that the FTA removes tariff and non-tariff barriers. It evaluates the FTA's impact on the two countries' trade with third countries. The paper specifies a traditional log-linear trade model consisting of import demand and export supply equations for both agricultural and industrial products. It uses quarterly time-series U.S. and Canadian trade data for 1972-1985. Copyright 1991 Western Economic Association International.
This study indicates freer trade with Canada and Mexico would increase U.S. exports to both countries. Broiler producers would increase production in the United States while producers in Canada and Mexico would reduce broiler production. Specifically, free trade with Mexico would increase production in Texas and free trade with Canada would increase production in the midwestern and southeastern United States. A 10 percent reduction in production costs in Canada and Mexico would reduce the amount of broiler meat both countries import from the United States. A 20 percent reduction would allow Canada and Mexico to be net exporters to the United States. Shadow prices indicated Fargo, Portland, Little Rock, Jackson and Charlotte in that order, are the most competitive producing regions in the United States. These regions all increased competitiveness under free trade with Canada and Mexico. Producing regions in Canada and Mexico could only be competitive under free trade by lowering production costs 10 to 20 percent. The study also indicates Fargo could support a processing facility with an annual capacity of 400 million pounds based on bilateral trade policies between the United States and Canada. The North American Free Trade Agreement (NAFTA) would make the Fargo facility more competitive in the North American broiler market.
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