Implications of the Canada-United States Free Trade Agreement for Regional Provision of Producer Services

Abstract

There are many ways to conceptualize trade in services. For the purposes of this paper, the most useful are frameworks that recognize the role of services in creating advantage in competitive economic systems. Two such characteristics of services are emphasized: distance-sensitivity and economies of scale. These characteristics are important in explaining why certain services are traded internationally, and why foreign establishment is an important component of international trade in services. Taken together, the frameworks considered suggest that multilateral and bilateral arrangements for foreign direct investment, service trade, and service establishments are crucial to the quantity, direction, and form of U.S.-Canada service trade flows. These flows have grown despite substantial barriers, some of which were reduced in the bilateral free trade agreement that took effect in 1989. This paper outlines the nature of the combined benefits of service trade liberalization, but the resulting flow of services is not easily predicted.