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As an affluent, high-tech industrial society, Canada today closely resembles the US in its market-oriented economic system, pattern of production, and high living standards. Since World War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban. Real rates of growth have averaged nearly 3.0% since 1993. Unemployment is falling and government budget surpluses are being partially devoted to reducing the large public sector debt. The 1989 US-Canada Free Trade Agreement (FTA) and 1994 North American Free Trade Agreement (NAFTA) (which included Mexico) have touched off a dramatic increase in trade and economic integration with the US. With its great natural resources, skilled labour force, and modern capital plant Canada enjoys solid economic prospects.

Political issues

Internal political divisions

While a long-standing constitutional impasse between English- and French-speaking areas has traditionally divided Canada, Liberalism and a waning interest in separation has defined Francophone politics of late. This change has eased some of the tension and the possibility of a split in the federation is no longer a major concern.

Relations with the U.S.

A significant concern for many Canadians in the first few years of the 21st Century is Canada's deteriorating relationship with the US. Although "brain drain" has slowed as a result of the severe economic downturn in the US between 2001 and 2003, Canada's own job market has suffered as well. Disputes over trade tariffs, multi-lateral military action and controversial Canadian legislation such as same-sex marriage, immigration law and legal medical marijuana have raised tensions and cooled relations between these two countries.

Despite these differences, Canada is by far the United States' largest trading partner, with more than $1.4 billion cad in trade per day. By comparison, in 1999, this was more than U.S. trade with all the countries of Latin America combined. U.S. exports to Canada exceed those to all members of the European Union combined. Just the two-way trade that crosses the Ambassador Bridge between Michigan and Ontario equals all U.S. exports to Japan. Canada's importance to the United States is not just a border-state phenomenon: Canada is the leading export market for 35 of 50 U.S. States.

Bilateral trade increased by about 50% between 1989, when the U.S.-Canada Free Trade Agreement (FTA) went into effect, and 1994, when the North American Free Trade Agreement (NAFTA) superseded it. Trade has since increased by 40%. NAFTA continues the FTA's moves toward reducing trade barriers and establishing agreed upon trade rules. It also resolves some long-standing bilateral irritants and liberalizes rules in several areas, including agriculture, services, energy, financial services, investment, and government procurement. NAFTA forms the largest trading area in the world, embracing the 406 million people of the three North American countries.

The largest component of U.S.-Canadian trade is in the automotive sector. Under the 1965 U.S.-Canada Automotive Agreement (Auto Pact), which provided for free trade in cars, trucks, and auto parts, two-way trade in automotive products rose from $715 million in 1964 to $104.1 billion in 1999. Auto Pact benefits are incorporated into NAFTA.

The U.S. is Canada's leading agricultural market, taking nearly one-third of all food exports. Conversely, Canada is the second-largest U.S. agricultural market (after Japan), primarily importing fresh fruits and vegetables and livestock products. Nearly two-thirds of Canada's forest products, including pulp and paper, are exported to the United States; almost 75% of Canada's total newsprint production also is exported to the U.S.

At $21 billion in 2000, U.S.-Canada trade in energy is the largest U.S. energy trading relationship in the world. The primary components of U.S. energy trade with Canada are oil, natural gas, and electricity. Canada is the United States' largest oil supplier and the fifth-largest energy producing country in the world. Canada provides about 16% of U.S. oil imports and 14% of total U.S. consumption of natural gas. The United States and Canada's national electricity grids are linked and both countries share hydropower facilities on the Western borders.

While 95% of U.S.-Canada trade flows smoothly, there are occasionally bilateral trade disputes over the remaining 5%, particularly in the agricultural and cultural fields. Usually, however, these issues are resolved through bilateral consultative forums or referral to WTO or NAFTA dispute resolution. In May 1999, the U.S. and Canadian Governments negotiated an agreement on magazines that will provide increased access for the U.S. publishing industry to the Canadian market. The United States and Canada also have resolved several major issues involving fisheries. By common agreement, the two countries submitted a Gulf of Maine boundary dispute to the International Court of Justice in 1981; both accepted the Court's October 12, 1984 ruling which demarcated the territorial sea boundary. An current issue between the United States and Canada is the ongoing softwood lumber dispute, as the US alleges that Canada unfairly subsidizes its forestry industry.

In 1990, the United States and Canada signed a bilateral Fisheries Enforcement Agreement, which has served to deter illegal fishing activity and reduce the risk of injury during fisheries enforcement incidents. The U.S. and Canada signed a Pacific Salmon Agreement in June 1999 that settled differences over implementation of the 1985 Pacific Salmon Treaty for the next decade.

Canada and the United States signed an aviation agreement during President Clinton's visit to Canada in February 1995, and air traffic between the two countries has increased dramatically as a result. The two countries also share in operation of the St. Lawrence Seaway, connecting the Great Lakes to the Atlantic Ocean.

The U.S. is Canada's largest foreign investor; at the end of 1999, the stock of U.S. direct investment was estimated at $116.7 billion, or about 72% of total foreign direct investment in Canada. U.S. investment is primarily in Canada's mining and smelting industries, petroleum, chemicals, the manufacture of machinery and transportation equipment, and finance.

Canada is the third-largest foreign investor in the United States. At the end of 1999, the stock of Canadian direct investment in the United States was estimated at $90.4 billion. Canadian investment in the United States--which includes investment from Canadian holding companies in the Netherlands--is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.

Statistics

GDP: purchasing power parity - $957.7 billion (2003 est.)

GDP - real growth rate: 1.6% (2003 est.)

GDP - per capita: purchasing power parity - $29,700 (2003 est.)

GDP - composition by sector:

• agriculture: 2.2%
• industry: 26.0%
• services: 71.8% (2002 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:

• lowest 10%: 2.8%
• highest 10%: 23.8% (1994)

Inflation rate (consumer prices): 2.8% (2003 est.)

Labour force: 16.4 million (2001 est.)

Labour force - by occupation: services 74%, manufacturing 15%, construction 5%, agriculture 3%, other 3% (2000)

Unemployment rate: 7.7% (2003 est.)

Budget:

• revenues: $178.6 billion USD
• expenditures: $161.4 billion USD (FY00/01 est.)

Industries: processed and unprocessed minerals, food products, wood and paper products, transportation equipment, chemicals, fish products, petroleum and natural gas

Industrial production growth rate: 0% (2003 est.)

Electricity - production: 566.3 TWh (2001)

Electricity - production by source:

• fossil fuel: 28%
• hydro: 57.9%
• nuclear: 12.9%
• other: 1.2% (2001)

Electricity:

• consumption: 504.4 TWh (2001)
• exports: 38.4 TWh (2001)
• imports: 16.11 TWh (2001)

Oil:

• production: 2.738 million bbl/day (2001 est.)
• consumption: 1.703 million bbl/day (2001 est.)
• exports: 2.008 million bbl/day (2001)
• imports: 1.145 million bbl/day (2001)
• proved reserves: 5.112 billion bbl (1 January 2002)

Natural gas:

• production: 186.8 billion cu m (2001 est.)
• consumption: 82.25 billion cu m (2001 est.)
• exports: 109 billion cu m (2001 est.)
• imports: 4.46 billion cu m (2001 est.)
• proved reserves: 1.691 trillion cu m (1 January 2002)

Agriculture - products: wheat, barley, oilseed, tobacco, fruits, vegetables; dairy products; forest products; fish

Exports: $279.3 billion f.o.b. (2003 est.)

Exports - commodities: motor vehicles and parts, newsprint, wood pulp, timber, crude petroleum, machinery, natural gas, aluminium, telecommunications equipment, electricity

Exports - partners: US 87.7%, Japan 2%, UK, Germany, South Korea, Netherlands, China (2002)

Imports: $240.4 billion f.o.b. (2003 est.)

Imports - commodities: machinery and equipment, crude oil, chemicals, motor vehicles and parts, durable consumer goods, electricity

Imports - partners: US 62.6%, China 4.6%, Japan 4.4%, UK, Germany, France, Mexico, Taiwan, South Korea (2002)

Federal Debt - external: $253 billion (1996), Total Federal Debt, 2000, $568 billion

Economic aid - donor: ODA, $1.3 billion (1999)

Currency: 1 Canadian dollar (Can$) = 100 cents

Exchange rates: Canadian dollars (Can$) per US$1 - 1.4 (2003), 1.5693 (January 2002), 1.5488 (2001), 1.4489 (2000), 1.4857 (1999), 1.4835 (1998), 1.3846 (1997), 1.3635 (1996), 1.3724 (1995)

Fiscal year: 1 April - 31 March

See also: Economic history of Canada, Canadian and American economics compared

 This article incorporates public domain material from The World Factbook. CIA.

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