The bilateral relationship between the United States and Canada is perhaps the closest and most extensive in the world. It is reflected in the staggering volume of trade--the equivalent of over $1 billion a day in goods, services, and investment income--and people, more than 200 million a year crossing the U.S.-Canadian border. In fields ranging from law enforcement cooperation to environmental cooperation to free trade, the two countries have set the standard by which many other countries measure their own progress. In addition to their close bilateral ties, Canada and the U.S. also work closely through multilateral fora.

Canada--a charter signatory to the United Nations and the North Atlantic Treaty Organization (NATO)--has continued to take an active role in the United Nations, including peacekeeping operations. Canada also is an active participant in discussions stemming from the Organization for Security and Cooperation in Europe (OSCE). Canada joined the Organization of American States (OAS) in 1990 and has been an active member, hosting the OAS General Assembly in Windsor in June 2000. In April 2001, Canada hosted the third Summit of the Americas in Quebec City. Canada served as the 2002 G-8 chair and hosted the G-8 summit in Kananaskis, Alberta, in June 2002. Canada also seeks to expand its ties to Pacific Rim economies through membership in the Asia-Pacific Economic Cooperation forum (APEC).

Although Canada views good relations with the U.S. as crucial to a wide range of interests, it occasionally pursues independent policies at odds with the United States. In 2003, Canada did not participate in the U.S.-led military coalition that liberated Iraq (although it has contributed financially to Iraq's reconstruction). Another example is Canada's leadership in the creation of and on-going support for the UN-created International Criminal Court (ICC) for war crimes, which the U.S. opposes due to fundamental flaws in the treaty that leave the ICC vulnerable to exploitation and politically motivated prosecutions. The United States and Canada also differ on the issue of landmines. Canada is a strong proponent of the Mine Ban Treaty (the Ottawa Convention), which bans the use of anti-personnel mines. The United States, while the world's leading supporter of demining initiatives, declined to sign the treaty due to unmet concerns regarding the protection of its forces and allies, particularly those serving on the Korean Peninsula, as well as the lack of exemptions for mixed munitions.

U.S. defense arrangements with Canada are more extensive than with any other country. The Permanent Joint Board on Defense, established in 1940, provides policy-level consultation on bilateral defense matters. The United States and Canada share NATO mutual security commitments. In addition, U.S. and Canadian military forces have cooperated since 1958 on continental air defense within the framework of the North American Aerospace Defense Command (NORAD). The military response to the terrorist attacks of September 11, 2001 both tested and strengthened military cooperation between the United States and Canada. In December 2002, the two countries established a Binational Planning Group to develop joint plans for maritime and land defense and for military support to civil authorities in times of emergency. Since 2002, Canada has participated in joint military actions in Afghanistan and, in early 2004, Canada will assume command of the International Security and Assistance Forces (ISAF) in Kabul.

The two countries also work closely to resolve transboundary environmental issues, an area of increasing importance in the bilateral relationship. A principal instrument of this cooperation is the International Joint Commission (IJC), established as part of the Boundary Waters Treaty of 1909 to resolve differences and promote international cooperation on boundary waters. The Great Lakes Water Quality Agreement of 1972 is another historic example of joint cooperation in controlling transboundary water pollution. The two governments also consult semiannually on transboundary air pollution. Under the Air Quality Agreement of 1991, both countries have made substantial progress in coordinating and implementing their acid rain control programs and signed an annex on ground level ozone in 2000. In June 2003, Canada and the U.S. announced a new border air quality initiative designed to increase cooperation in combating cross-border air pollution, including particulate matter. Three regional projects have been selected for initial joint action.

While law enforcement cooperation and coordination were excellent prior to the terrorist attacks on the United States of September 11, they have since become even closer. Canada, like the United States, has strengthened its laws and realigned resources to fight terrorism. U.S.-Canada bilateral and multilateral cooperation in the fight is unequaled.

Trade and Investment
The United States and Canada have the world's largest bilateral trading relationship. In 2001, the equivalent of over $1 billion a day in goods, services, and investment income crossed the U.S.-Canada border. In fact, total two-way trade in goods between the United States and Canada is larger than total U.S. goods trade with the entire 15-country European Union. 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 38 of the 50 U.S. States.

The comprehensive U.S.-Canada Free Trade Agreement (FTA), which went into effect in 1989, was superseded by the North American Free Trade Agreement among the United States, Canada and Mexico (NAFTA) in 1994. NAFTA, which embraces the 406 million people of the three North American countries, expanded upon FTA commitments to move toward reducing trade barriers and establishing agreed upon trade rules. It has also resolved long-standing bilateral irritants and liberalized rules in several areas, including agriculture, services, energy, financial services, investment, and government procurement. Since the implementation of NAFTA in 1994, total two-way merchandise trade between the United States and Canada has grown by 125%. When services are added, the growth has been 142%.

Canada is an urban services-dependent economy with a large manufacturing base. Since Canada is the largest export market for 38 of the 50 States, the U.S.-Canada border is extremely important to the well-being and livelihood of millions of Americans.

The U.S. is Canada's leading agricultural market, taking nearly one-third of all food exports. However, imports of Canadian livestock products, particularly ruminants, fell drastically after the discovery of a single case of bovine spongiform encephalopathy (BSE, mad cow disease) in Spring 2003. Only limited shipments of certain beef cuts are currently permitted. Conversely, Canada is the second-largest U.S. agricultural market (after Japan), primarily importing fresh fruits and vegetables and livestock products. Of Canada's $27 billion in exports of wood, pulp, and paper in 2001, 80% went to the United States.

The U.S. and Canada enjoy the largest energy trade relationship in the world, with Canada being the single largest foreign supplier of energy to the United States - 17% of U.S. oil imports and 18% of U.S. natural gas demand. The Oil and Gas Journal's decision to recognize the commercial viability of Canada's oil sands has raised Canada's proven reserves to 180 billion barrels, making it the world's second-largest holder of reserves after Saudi Arabia. The electricity grids of the United States and Canada are linked and both countries share hydropower facilities on the Western borders. Quebec is a major source of electricity for New England.

While 98% of U.S.-Canada trade flows smoothly, there are occasional bilateral trade disputes over the remaining 2%. Usually, however, these issues are resolved through bilateral consultative forums or referral to World Trade Organization (WTO) or NAFTA dispute resolution. For example, in response to WTO challenges by the United States, 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, and Canada amended its patent laws to extend patent protection to 20 years. Canada currently has several disputes with the United States related to U.S. trade remedy law, including actions taken by the U.S. Government on softwood lumber, pending in the WTO and NAFTA dispute panels. The U.S. and Canada resolved a WTO dispute over dairy products in 2003. 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 that demarcated the territorial sea boundary.

The United States and Canada signed a Pacific Salmon Agreement in June 1999 that settled differences over implementation of the 1985 Pacific Salmon Treaty. In 2001, the two countries reached agreement on Yukon River Salmon, implementing a new abundance-based resource management regime and effectively realizing coordinated management over all West Coast salmon fisheries. The United States and Canada recently reached agreement on sharing another transboundary marine resource, Pacific Hake.

In 1995, the United States and Canada signed a liberalized aviation agreement, and air traffic between the two countries has increased dramatically as a result. U.S. immigration and customs inspectors provide preclearance services at seven airports in Canada, allowing air travelers direct connections in the United States. 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. Statistics Canada reports that at the end of 2002, the stock of U.S. foreign direct investment in Canada was $142.8 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 2002, the stock of Canadian direct investment in the United States was estimated at $92 billion. Canadian investment in the United States, including investments from Canadian holding companies in the Netherlands, was $128.5 billion. Canadian investment in the United States is concentrated in manufacturing, wholesale trade, real estate, petroleum, finance, and insurance and other services.

The U.S. Embassy in Canada is located at 490 Sussex Drive, Ottawa, Ontario, K1N 1G8 (tel. 613-238-5335).