Canada: Background and U.S. Relations

Congressional research reportJan 10, 2025

Ask Donna

What actually matters in this document.

Text

Canada: Background and U.S. Relations

Updated January 10, 2025

Congressional Research Service

https://crsreports.congress.gov

R47620

SUMMARY

Canada: Background and U.S. Relations

The United States and Canada are close partners, bound together by a 5,525-mile border as well

as by shared history and values. The countries maintain long-standing mutual security

commitments under NATO and the binational North American Aerospace Defense Command

(NORAD). The United States and Canada also have one of the largest bilateral commercial

relationships in the world, with an average of more than $2.5 billion of goods and services

crossing the border each day in 2023. Other areas of U.S.-Canada cooperation include crossborder law enforcement and the management of transboundary natural resources. Given the high

degree of integration between Canada and the United States, Members of Congress often track

bilateral relations and assess how Canadian policies may affect the United States.

R47620

January 10, 2025

Peter J. Meyer,

Coordinator

Specialist in Latin

American and Canadian

Affairs

Canada’s Domestic and Foreign Policy

Justin Trudeau has served as Canada’s prime minister since 2015. His center-left Liberal Party currently holds a plurality in

the House of Commons and must secure the support of other parties to advance its agenda in Parliament. Over the past nine

years, the Liberal Party government has prioritized policies intended to address climate change and to strengthen Canada’s

social safety net. While continuing to advance those initiatives, the Liberal Party government has placed more emphasis on

addressing Canadians’ cost-of-living concerns over the past three years as Canada has contended with elevated inflation and

relatively slow economic growth (estimated at 1.3% for 2024). In a December 2024 poll, 26% of Canadians expressed

satisfaction with Prime Minister Trudeau’s government and 69% expressed dissatisfaction. On January 6, 2025, Trudeau

announced he would step down after the Liberal Party elects a new leader. Polls conducted prior to Trudeau’s announcement

suggest that the center-right Conservative Party, led by Pierre Poilievre, is currently poised to win a parliamentary majority

and control of the government in Canada’s next federal election, due by October 2025.

The Trudeau government has adhered to Canada’s traditional approach to foreign policy, emphasizing multilateral diplomacy

and contributions to collective security alliances. Among other actions, Canada under Prime Minister Trudeau has bolstered

its support for NATO operations, deploying additional military personnel to Eastern Europe since Russia’s February 2022

invasion of Ukraine. Canada also has joined with the United States and other like-minded countries to push back against

actions by China that undermine international norms and standards. Although the Liberal Party government has doubled

nominal defense expenditures since 2014, Canada has yet to meet its NATO defense spending commitment and the Canadian

Armed Forces continue to contend with personnel shortfalls and inadequate equipment.

U.S.-Canada Relations

Over the past four years, President Joseph Biden and Prime Minister Trudeau have sought to revitalize and expand the U.S.Canada partnership. Among other areas of cooperation, the U.S. and Canadian governments have taken steps to modernize

NORAD, strengthen cross-border law enforcement, and accelerate the deployment of renewable energy and low-carbon

technologies. Nevertheless, the U.S. and Canadian governments have continued to disagree on some policy matters, such as

the taxation and regulation of digital services and the construction and maintenance of certain cross-border oil and gas

pipelines.

U.S.-Canada relations are entering a renewed era of uncertainty after Donald Trump’s November 2024 election to a second

presidential term. From 2017 to January 2021, the Trump Administration challenged long-standing pillars of the bilateral

relationship, including common commitments to NATO and free trade in North America. This, along with divergent

approaches to a range of issues, strained U.S.-Canadian relations during those years. President-elect Trump’s statements

during and since the 2024 presidential election, including proposals to impose tariffs on imports from Canada, suggest the

countries may be on the cusp of another contentious period in the bilateral relationship.

Congressional Action

U.S.-Canada relations remained of interest to the 118th Congress. In committee hearings and other oversight efforts, some

Members examined challenges at the U.S.-Canada border, NORAD’s capabilities and resource requirements, and

implementation of the United States-Mexico-Canada trade agreement (USMCA), among other issues. In terms of legislation,

Congress enacted various provisions related to foreign affairs, defense, and border security cooperation in annual National

Defense Authorization Acts (P.L. 118-31 and P.L. 118-159). Congress also provided funding for NORAD, binational

commissions that help manage environmental and natural resources issues, and other initiatives related to bilateral treaty

obligations in annual appropriations legislation (P.L. 118-47). The 119th Congress may consider whether and how to continue

shaping U.S.-Canada relations using its legislative and oversight prerogatives.

Congressional Research Service

Canada: Background and U.S. Relations

Contents

Introduction ..................................................................................................................................... 1

Canada’s Political and Economic Environment .............................................................................. 1

Canada’s Foreign and Defense Policies........................................................................................... 6

NATO Commitments................................................................................................................. 6

Support for Ukraine................................................................................................................... 8

Relations with the People’s Republic of China and the Indo-Pacific........................................ 9

Arctic Policy............................................................................................................................. 11

U.S.-Canada Relations .................................................................................................................. 13

Security Cooperation............................................................................................................... 15

NORAD ............................................................................................................................ 15

Border Issues..................................................................................................................... 17

Trade and Investment Issues ................................................................................................... 20

Automotive Trade ............................................................................................................. 22

Critical Minerals and EV Battery Supply Chains ............................................................. 25

Digital Services ................................................................................................................. 27

Canadian Dairy Tariff-Rate Quotas and Supply Management System ............................. 32

Softwood Lumber ............................................................................................................. 33

Government Procurement and Federally Funded Infrastructure ....................................... 36

Energy, Environmental, and Natural Resources Issues ........................................................... 37

Bilateral Energy Trade ...................................................................................................... 37

Cross-Border Energy Infrastructure Disputes ................................................................... 38

Climate Change Collaboration .......................................................................................... 41

Binational Commissions ................................................................................................... 42

Great Lakes Cooperation .................................................................................................. 49

Columbia River Treaty...................................................................................................... 53

Outlook .......................................................................................................................................... 54

Figures

Figure 1. Encounters and Interceptions at the U.S.-Canada Border Between Points of

Entry: 2016-2024........................................................................................................................ 19

Tables

Table 1. Canada and United States: Selected Comparative Economic Statistics, 20222024 .............................................................................................................................................. 4

Table 2. U.S. Crude Oil Imports from Canada: 2019-2023 ........................................................... 38

Table 3. Canada and United States: Selected Comparative Greenhouse Gas Emissions

Indicators, 2021 .......................................................................................................................... 41

Table 4. U.S. Funding for Selected U.S.-Canada Binational Commissions,

FY2023-FY2025 ........................................................................................................................ 43

Congressional Research Service

Canada: Background and U.S. Relations

Contacts

Author Information........................................................................................................................ 55

Congressional Research Service

Canada: Background and U.S. Relations

Introduction

Shared history, geography, and values underpin the relationship between the United States and

Canada. The countries share mutual security commitments under NATO; maintain a close

intelligence partnership as members of the “Five Eyes”; cooperate on continental defense through

the binational North American Aerospace Defense Command (NORAD); and coordinate

frequently on law enforcement efforts, with a particular focus on securing their shared 5,525-mile

border.1 Bilateral trade and investment ties are extensive, bolstered by more than three decades of

free trade under the 1989 U.S.-Canada Free Trade Agreement, the 1994 North American Free

Trade Agreement (NAFTA), and the 2020 United States-Mexico-Canada Agreement (USMCA).2

The United States and Canada also work together to manage transboundary environmental and

natural resources issues, including through numerous initiatives at the state/provincial and local

levels. Nevertheless, with a population (41.5 million) and economy roughly one-tenth the size of

those of the United States, Canada historically has sought to protect its autonomy and unique

identity and some Canadians have been wary of policies they perceive to cede sovereignty to the

United States.3

Due to the many similarities and high degree of integration between Canada and the United

States, legislators in both countries often study policies proposed or implemented across the

border. The U.S. Congress and Canadian Parliament have engaged directly for more than 65 years

through the Canada-United States Inter-Parliamentary Group (see text box below). During the

118th Congress, some Members of Congress expressed particular interest in U.S. and Canadian

efforts to respond to geostrategic competition from Russia and China, modernize NORAD, secure

the shared border, implement USMCA, accelerate the deployment of low-carbon technologies,

protect and restore the Great Lakes, and update the Columbia River Treaty.4 The 119th Congress

may continue to examine Canada’s approach to such issues as it considers appropriations and

other legislation and engages in oversight of U.S. policy.

Canada-United States Inter-Parliamentary Group

Since 1959 (P.L. 86-42, H.Rept. 86-215), the U.S. Congress and the Canadian Parliament have maintained an InterParliamentary Group (IPG) to foster mutual understanding and discuss bilateral and multilateral matters of

concern to both countries. The U.S. Section of the IPG includes bipartisan representatives of the U.S. House and

Senate, and the Canadian Section includes multiparty representatives of the Canadian House of Commons and

Senate. Members historically have met annually, with the location alternating between the United States and

Canada. The Canadian Section is expected to host the next meeting in 2025.

Canada’s Political and Economic Environment

Canada is a constitutional monarchy and a parliamentary democracy. Although Canada gained

self-governance over most matters upon confederation in 1867, autonomous control over its

1 In addition to the United States and Canada, the “Five Eyes” intelligence alliance includes Australia, New Zealand,

and the United Kingdom.

2 Often referred to as the Canada-United States-Mexico Agreement (CUSMA) in Canada.

3 Government of Canada, Statistics Canada, “Canada’s Population Estimates, Third Quarter 2024,” December 17, 2024.

Also see, for example, CBC News, “Border Talks ‘Not About Sovereignty:’ Harper,” February 4, 2011; and Neil

Macdonald, “With Its New Trade Deal, Canada Surrenders Sovereignty to a Bully,” CBC News, October 1, 2018.

4 Low-carbon technologies typically refer to processes, products, or services that reduce the greenhouse gas emissions

associated with an activity or product. University of Ottawa, Smart Prosperity Institute, Growing Clean: Investment

Flows in Low-Carbon Technology to 2030, June 2019, p. 2.

Congressional Research Service

1

Canada: Background and U.S. Relations

foreign affairs in 1926, and full independence from the United Kingdom (UK) in 1982, it

maintains some political ties to the British Commonwealth.5 King Charles III is the head of state;

a governor general, appointed by the king on the advice of Canada’s prime minister, represents

the king in Canadian affairs and carries out certain constitutional, ceremonial, and

representational duties. Canada’s bicameral Parliament includes an elected, 338-seat House of

Commons and an appointed, 105-seat Senate.6 Canadians elect Members of the House of

Commons from individual districts (ridings) under a first-past-the-post system, which requires a

plurality of the vote to win a seat. Following a parliamentary election, the governor general

typically calls upon the party with the most seats to form a government, and the leader of that

party typically becomes the prime minister. A government lasts as long as it can command a

parliamentary majority, for a maximum of four years. Under Canada’s federal system, the

national government shares power and authority with 10 provinces and three territories, each of

which is governed by a unicameral assembly.

Justin Trudeau has served as Canada’s prime minister since 2015. His center-left Liberal Party

won an outright majority in the House of Commons in the 2015 federal election, and a plurality of

seats in both the 2019 federal election and a 2021 snap election.7 The Liberal Party currently

holds 153 seats in the House of Commons. The Conservative Party of Canada, which holds 120

seats, is the Official Opposition. Given the Liberal Party’s lack of a majority, Trudeau’s

government must obtain support from other parties—such as the left-of-center New Democratic

Party (NDP), which holds 25 seats, or the Quebec sovereignty-focused Bloc Québécois, which

holds 33 seats—to remain in power and advance its legislative agenda.8 In March 2022, the NDP

agreed to support the Liberal Party government on key votes until June 2025 in exchange for the

Liberal Party advancing certain NDP policy priorities.9 The NDP walked away from the

agreement in September 2024, however, reportedly due to some policy disagreements and in

order to distance the NDP from the government in advance of the next election.10

Addressing climate change has been one of the Liberal Party government’s top priorities. In 2016,

Trudeau negotiated with Canada’s provinces and territories to adopt the Pan-Canadian

Framework on Clean Growth and Climate Change, which imposed a price on carbon emissions.

The Canadian Net-Zero Emissions Accountability Act, enacted in 2021, enshrined Canada’s

commitments under the Paris Agreement to reduce greenhouse gas emissions by 40%-45% below

2005 levels by 2030 and to reduce net greenhouse gas emissions to zero by 2050.11 The act also

established an independent Net-Zero Advisory Body to inform policy decisions and required the

government to produce interim emissions reduction targets, plans, and progress reports. Major

5 Government of Canada, Department of Justice Canada, “The Canadian Constitution,” August 26, 2024; and U.S.

Department of State, Office of the Historian, “A Guide to the United States’ History of Recognition, Diplomatic, and

Consular Relations, by Country, since 1776: Canada,” https://history.state.gov/countries/canada.

6 The governor general officially appoints senators on the advice of the prime minister. In 2016, Canadian Prime

Minister Justin Trudeau established the Independent Advisory Board for Senate Appointments to provide merit-based,

but nonbinding, recommendations on nominations to the upper house.

7 Although elections were not due until 2023, Governor General Mary Simon, at Trudeau’s request, dissolved

Parliament in August 2021, triggering a snap election in September 2021. Trudeau asserted the election was necessary

for Canadians to determine the direction of the country at a pivotal moment in Canada’s recovery from the COVID-19

pandemic.

8 The remaining seats are held by the Green Party (2), independents (4), or are vacant (1). Parliament of Canada, House

of Commons of Canada, “Party Standings in the House of Commons,” accessed December 20, 2024.

9 Prime Minister of Canada, Delivering for Canadians Now, A Supply and Confidence Agreement, March 22, 2022.

10 Kyle Duggan, “Why Canada’s Progressive Party Just Dumped Trudeau,” Politico Pro, September 7, 2024.

11 Net-zero emissions refers to a situation where any continued human-caused greenhouse gas emissions are balanced

by carbon removed from the atmosphere and stored in products or geological, terrestrial, or ocean reservoirs.

Congressional Research Service

2

Canada: Background and U.S. Relations

components of Canada’s plan include raising the price of carbon incrementally from C$50 (about

$37)12/ton in 2022 to C$170 ($125)/ton in 2030 and increasing regulatory and financial incentives

for investments in clean energy, low-carbon manufacturing, and carbon capture and storage

technologies.13 Canada’s Office of the Parliamentary Budget Officer projects that the government

will spend C$103 billion ($76 billion) from 2022/23 through 2034/35 on six investment tax

credits enacted, in part, to compete with the United States in attracting clean energy investments

following the enactment of P.L. 117-169, often referred to as the Inflation Reduction Act of

2022.14

The Liberal Party government’s efforts to reconcile Canada’s Paris Agreement commitments with

its role as a major oil and gas producer have drawn criticism from the energy sector and

environmentalists. Some in the oil and gas industry, which accounted for 7.2% of Canada’s gross

domestic product (GDP) and 30.6% of Canada’s greenhouse gas emissions in 2022, maintain that

Canada’s targets are unrealistic.15 Meanwhile, some environmentalists contend that Canada needs

to reduce its emissions and transition away from fossil fuels more quickly than the government’s

current plan envisions.16

The Liberal Party government also has sought to strengthen and expand Canada’s social welfare

system. During their first four years in power, the Liberals increased cash transfers to help

families with the cost of raising children and expanded parental leave and pension benefits.

Following the onset of the COVID-19 pandemic, the Canadian government created a series of

temporary relief programs that provided C$210.7 billion (about $154 billion, or 10% of Canada’s

2021 GDP) in direct financial support to individuals and businesses between March 2020 and

May 2022.17 Those government transfers, on average, exceeded Canadians’ market income losses.

More recently, the Liberal Party government enacted legislation to enhance labor protections and

to create new dental care and prescription drug programs as part of its agreement with the NDP.

Canadians have consistently identified the cost of living as the top issue facing Canada in public

opinion polls taken since 2022.18 Consumer prices rose by 6.8% in 2022 and 3.9% in 2023,

contributing to two consecutive years of declining inflation-adjusted wages (see Table 1). Canada

also has experienced a sharp reduction in housing affordability, with home ownership costs

increasing from 42.2% to 58.4% of median household income between the first quarter of 2020

and the third quarter of 2024.19 Canada’s unemployment rate has begun to rise as relatively slow

12 Currency conversions throughout this report are based on the average exchange rate from January 2024 through

November 2024 of C$1.36/U.S.$1. Data from the Board of Governors of the Federal Reserve, “Foreign Exchange

Rates,” December 2, 2024.

13 The carbon price is scheduled to rise from C$80 ($59)/ton in 2024 to C$95 ($70)/ton in April 2025. Government of

Canada, Environment and Climate Change Canada, 2030 Emissions Reduction Plan, March 2022.

14 Rolande Kpekou Tossou, Nora Nahornick, and Tim Scholz, The Long-Term Fiscal Cost of Major Economic

Investment Tax Credits, Government of Canada, Office of the Parliamentary Budget Officer, July 3, 2024.

15 Nia Williams, “Canadian Oil Industry at Odds with Trudeau over New 2030 Climate Plans,” Reuters, March 31,

2022; Government of Canada, Natural Resources Canada, Energy Fact Book 2023-2024, 2023, p. 100; and

Government of Canada, Environment and Climate Change Canada, National Inventory Report 1990-2022, 2024, p. 11.

16 See, for example, Climate Action Tracker, “Canada,” August 26, 2024.

17 Office of the Auditor General of Canada, COVID-19 Pandemic Report 10: Specific COVID-19 Benefits, December

2022, p. 5.

18 In September 2024, 57% of Canadians surveyed identified the cost of living as one of the top three issues facing

Canadians. Angus Reid Institute, “Federal Politics: Concern Over Immigration Quadruples Over Last 24 Months,”

September 4, 2024.

19 Robert Hogue, “Homebuyers Get Some Affordability Relief but Strains Endure,” Royal Bank of Canada, December

20, 2024.

Congressional Research Service

3

Canada: Background and U.S. Relations

economic growth (estimated at 1.3% in 2024) has coincided with higher levels of immigration.20

Canada’s Conservative Party, led by Pierre Poilievre, has blamed the Liberal Party government’s

environmental, fiscal, and immigration policies for these socioeconomic challenges.21

Table 1. Canada and United States: Selected Comparative Economic Statistics,

2022-2024

Canada

United States

2022

2023

2024

(est.)

2022

2023

2024

(est.)

2.4

2.5

2.6

26.0

27.7

29.1

63,063.6

63,811.7

65,306.5

76,147.3

80,706.1

84,207.9

4.2

1.5

1.3

2.5

2.9

2.7

Agriculture

2.0

1.9

1.9

0.8

0.8

0.8

Industry

24.5

24.0

24.5

16.8

16.8

16.9

Services

73.6

74.1

74.6

82.3

82.4

82.3

Exports of Goods & Services (% GDP)

33.9

33.3

32.6

11.6

11.0

10.9

Imports of Goods & Services (% GDP)

33.4

33.3

32.9

15.3

13.9

14.1

Unemployment Rate (% of labor force)

5.3

5.4

6.3

3.6

3.6

4.1

Inflation (% change in consumer prices)

6.8

3.9

2.4

8.0

4.1

2.8

Average Real Wages (% change)

-3.1

-0.1

1.5

-1.5

0.8

1.1

Budget Balance (% of GDP)

0.1

-0.6

-1.2

-5.4

-6.2

-7.1

100.7

101.9

100.5

95.0

96.0

98.0

Indicator

GDP (Nominal PPP, trillions U.S.$)

GDP Per Capita (Nominal PPP, U.S.$)

Real GDP Growth (% change)

Sectoral Components of GDP (% of

GDP)

Public Debt (% of GDP)

Source: Economist Intelligence Unit (EIU), “Data” tool, accessed January 2, 2025. Data derived from

Government of Canada, Statistics Canada; U.S. Department of Commerce, Bureau of Economic Analysis; U.S.

Department of Labor, Bureau of Labor Statistics; U.S. Department of the Treasury; U.S. Office of Management

and Budget; and the Organisation for Economic Co-operation and Development.

Notes: GDP = gross domestic product; PPP = purchasing power parity; “Real” = adjusted for inflation.

Canada’s opposition parties also have criticized the Liberal Party government for allegedly failing

to prevent or properly respond to foreign interference in Canadian politics. Since early 2023,

Canadian press sources have published a series of reports about alleged foreign influence

operations in Canada, particularly by the People’s Republic of China (PRC, or China). The

reports spurred Parliamentary committees to investigate the allegations and led the Liberal Party

government—under political pressure—to establish an independent Public Inquiry into Foreign

Interference in Federal Electoral Processes and Democratic Institutions. In May 2024, the

commission conducting the public inquiry released an initial report.22 Among other preliminary

findings, the commission assessed that the PRC is the main perpetrator of foreign interference

20 Economist Intelligence Unit (EIU), “Jobs Market Struggles to Absorb Larger Labour Force,” June 11, 2024.

21 See, for example, “Trudeau, Poilievre Debate Inflation in Canada,” CTV News, October 24, 2023; and Brad Platt,

“Pierre Poilievre Pledges to Tie Immigration Levels to Homebuilding,” Bloomberg News, January 12, 2024.

22 Honourable Marie-Josée Hogue, Commissioner, Public Inquiry into Foreign Interference in Federal Electoral

Processes and Democratic Institutions: Initial Report, May 3, 2024.

Congressional Research Service

4

Canada: Background and U.S. Relations

against Canada, and that the PRC’s activities, including the use of intimidation and

disinformation to influence diaspora communities, may have affected election results in certain

districts in 2019 and 2021.23 The commission also assessed that foreign interference did not

undermine the integrity of the electoral system or affect which political party won power at the

national level. The commission is to issue a final report by January 31, 2025.

In a December 2024 poll, 26% of Canadians asserted that they were satisfied with the Trudeau

government, and 69% asserted that they were dissatisfied.24 Under increasing pressure from

within the Liberal Party to step aside, Trudeau announced on January 6, 2025, that he would

resign once the Liberal Party selects a new leader.25 Potential candidates to succeed Trudeau

reportedly include François-Philippe Champagne, Minister of Innovation, Science and Industry;

Anita Anand, Minister of Transport and Internal Trade; Mark Carney, a former governor of the

Bank of Canada; Christy Clark, a former premier of British Columbia; and Chrystia Freeland,

whose resignation as finance minister in December 2024 helped precipitate Trudeau’s

resignation.26 The Liberal Party is scheduled to conclude a nationwide leadership vote on March

9, 2025.27

Canada’s next federal election is due by October 2025 but appears likely to occur sooner given

that Canada’s three primary opposition parties have announced plans to bring down the Liberal

Party government with a no-confidence vote once they have an opportunity to do so.28 The House

of Commons had been scheduled to return to session on January 27, 2025, but Governor General

Mary Simon granted Trudeau’s request to suspend (prorogue) Parliament until March 24, 2025.

A January 6, 2025, CBC electoral projection, based on polls conducted prior to Trudeau’s

resignation announcement, suggests that the Conservative Party is currently poised to win a

parliamentary majority in the next election. The CBC projects that the Conservative Party would

win 44% of the national popular vote and 227 seats, compared with 20% of the vote and 44 seats

for the Liberal Party, and 19% of the vote and 29 seats for the NDP. The CBC projects that the

Bloc Québécois, which competes only in Quebec, would win 37% of the provincial vote and 41

seats.29 Conservative Party leader Pierre Poilievre has yet to articulate a full campaign platform,

but he has pledged to repeal the consumer fuel charge portion of Canada’s carbon pricing system

and to cut income taxes and government expenditures.30

23 Other governments named in the report are those of Russia, India, Pakistan, and Iran.

24 The remainder did not respond or did not have an opinion. The poll was conducted from November 29 to December

1, 2024. Leger, Canadian Politics and Opinions on GST Holiday and Rebate Cheques, December 3, 2024.

25 Marie Woolf, “Atlantic Liberal Caucus Asks Trudeau to Resign and Allow Party to Replace Him,” Globe and Mail,

December 30, 2024; CBC News, “Read Prime Minister Justin Trudeau’s Resignation Speech in Full,” January 6, 2025.

26 Mickey Djuric, “Here’s Who Could Replace Justin Trudeau,” Politico Pro, January 6, 2025.

27 Liberal Party of Canada, “Liberal Party of Canada Announces Date of Leadership Vote,” January 9, 2025.

28 Racy Rafique, “Conservatives to Move Non-Confidence Motion Against Liberal Government in the New Year,”

CBC News, December 27, 2024.

29 Canadians’ remaining votes are projected to go to the Green Party (4%, 2 seats) and the right-wing People’s Party of

Canada (2%, 0 seats). CBC News, “Poll Tracker,” January 6, 2025. Projections are updated regularly at

https://newsinteractives.cbc.ca/elections/poll-tracker/canada/.

30 See, for example, Alex Ballingall and Stephanie Levitz, “Pierre Poilievre Says He’ll ‘Axe the Carbon Tax’ for

Consumers – but when It Comes to the Pricing System for Canadian Industries, He Won’t Say,” Toronto Star, May 23,

2024; and Tonda MacCharles and Alex Ballingall, “Pierre Poilivre Vows He Would Balance the Federal Budget ‘as

Soon as Possible’ – but Doesn’t Give Details About Cuts,” Toronto Star, September 27, 2024.

Congressional Research Service

5

Canada: Background and U.S. Relations

Canada’s Foreign and Defense Policies

Canadian governments historically have argued that the multilateral institutions, agreements, and

standards that Canada helped establish with the United States and other allies in the aftermath of

World War II (sometimes referred to as the rules-based international order) are essential to

Canada’s physical security and economic prosperity. According to Chrystia Freeland, who served

as Canada’s minister of foreign affairs from 2017 to 2019 and deputy prime minister and finance

minister from 2019 to December 2024, “As a middle power living next to the world’s only super

power, Canada has a huge interest in an international order based on rules. One in which might is

not always right. One in which more powerful countries are constrained in their treatment of

smaller ones by standards that are internationally respected, enforced and upheld.”31 Since World

War II, Canadian governments have sought to increase their influence over the shape of the

international order by maintaining close relations with the United States, contributing to

collective security alliances like NATO, and engaging in multilateral diplomacy.

The Liberal Party government came to office pledging to reinvigorate Canada’s role in the world

and drafted a new defense policy, which asserted that defending Canada and Canadian interests

“not only demands robust domestic defense but also requires active engagement abroad.”32 A

2024 defense policy update states that Canada will prioritize efforts to assert its sovereignty over

Canadian territory—particularly in the Arctic, defend North America alongside the United States,

and make valuable contributions to allies and partners, particularly in the Euro-Atlantic and IndoPacific regions.33 To date, the Canadian government has made limited progress in meeting its

NATO defense spending commitments due its prioritization of other expenditures and difficulties

moving allocated resources through Canada’s defense procurement system.34 These defense

budget constraints have contributed to military personnel and equipment shortfalls that have

limited Canada’s ability to contribute to NATO operations and other international security

efforts.35

NATO Commitments

Canada, like the United States, was a founding member of NATO in 1949 and has been an

advocate for NATO enlargement. Since 2017, Canada has commanded a multinational NATO

battlegroup deployed to Latvia as part of the alliance’s Enhanced Forward Presence, which aims

to deter and defend against potential attacks on allies in Eastern Europe particularly vulnerable to

Russian aggression. At a June 2022 NATO summit, following Russia’s full-scale invasion of

Ukraine, Canada agreed to work with Latvia and other NATO allies to transform the battlegroup

into a “combat capable brigade.”36 That process, to be completed by 2026, includes more than

31 Government of Canada, Global Affairs Canada, “Address by Minister Freeland on Canada’s Foreign Policy

Priorities,” June 6, 2017.

32 Government of Canada, Department of National Defence and Canadian Armed Forces, Strong, Secure, Engaged:

Canada’s Defence Policy, June 2017, p. 14.

33 Government of Canada, Department of National Defence and Canadian Armed Forces, Our North, Strong and Free:

A Renewed Vision for Canada’s Defence, April 2024, pp. 1-2.

34 Catherine Lévasque, “Why Canada Keeps Missing Its NATO Spending Target – and Why Conservatives Aren’t

Promising to Meet It,” National Post, July 14, 2023.

35 See, for example, Lee Berthiaume, “Canadian Frigates Missing from NATO Naval Forces for First Time Since

2014,” Canadian Press, August 8, 2022; and Steven Chase, “Trudeau Hedges on Military Mission to Haiti, Supply of

Soldiers,” Globe and Mail, January 12, 2023.

36 Government of Canada, Department of National Defence, “Canada and Latvia Sign Joint Declaration to Augment

NATO’s Enhanced Forward Presence Latvia,” press release, June 29, 2022.

Congressional Research Service

6

Canada: Background and U.S. Relations

doubling the size of the force (to more than 3,500 troops, including 2,200 continuously deployed

Canadian Armed Forces personnel), expanding necessary military infrastructure, and procuring

and deploying additional equipment and systems.37 In July 2023, Prime Minister Trudeau

announced a three-year, C$2.6 billion (about $1.9 billion) renewal and expansion of Canada’s

Operation REASSURANCE, which includes the deployment to Latvia as well as contributions to

NATO air and maritime activities in Europe on a rotating basis.38

According to NATO estimates, Canada spent the equivalent of 1.37% of GDP on defense in 2024.

That figure is an increase from 1.01% of GDP in 2014—the year before the Liberal Party

government took office—but is below the 2% of GDP guideline that Canada and other NATO

allies committed to reaching by 2024. Canada is one of two allies (along with Belgium) that is

also falling short of the NATO guideline to devote at least 20% of defense spending to

procurement and modernization; Canada allocated an estimated 18.6% of its defense expenditures

to equipment in 2024.39 At the July 2024 NATO Summit, Prime Minister Trudeau announced that

Canada expects to meet NATO’s 2% of GDP guideline by 2032.40 Canada’s independent Office of

the Parliamentary Budget Officer forecasts that Canada’s announced defense plans would bring

defense expenditures to 1.58% of GDP in the 2029-2030 fiscal year, leaving the country with a

significant shortfall to address over the following three fiscal years.41 Conservative Party leader

Pierre Poilievre has not committed to reaching the 2% of GDP target should he become prime

minister, stating that he would need to assess Canada’s fiscal situation.42

Canadian government officials note that Canada has doubled its defense spending over the past

decade (not adjusting for inflation) and that its absolute defense expenditures are the seventhhighest within the NATO alliance.43 Among other planned investments, the Canadian government

is purchasing new fighter aircraft and surface combat ships from Lockheed Martin and exploring

opportunities for expanding and renewing its submarine fleet.44 Some of this equipment is not

expected to be delivered until the 2030s, and years of recruitment and retention challenges,

deferred maintenance, and delayed procurements have eroded Canada’s military capacity.45

During Canada’s 2023-2024 fiscal year, the Canadian Armed Forces was about 14,500 troops

(14%) below its authorized force strength, and Canada’s Department of National Defence

37 Government of Canada, Department of National Defence, “Roadmap – Scaling the EFP Latvia Battle Group to

Brigade,” July 11, 2023; and Government of Latvia, National Armed Forces, “Ribbon-Cutting Ceremony of the NATO

Multinational Brigade Infrastructure to Take Place at Military Base ‘Ādaži,’” August 28, 2024.

38 Prime Minister of Canada, “Prime Minister Increases Support for Key NATO Presence,” July 10, 2023.

39 NATO, “Defence Expenditure of NATO Countries (2014-2024),” June 17, 2024.

40 Prime Minister of Canada Justin Trudeau, “Prime Minister Strengthens Defence and Security Partnerships at the

NATO Summit,” July 11, 2024.

41 Christopher Penney, The Fiscal Implications of Meeting the NATO Military Spending Target, Government of

Canada, Office of the Parliamentary Budget Officer, October 30, 2024.

42 Peter Zimonijic, “Poilievre Won’t Commit to NATO 2% Target, Says He’s ‘Inheriting a Dumpster Fire’ Budget

Balance,” CBC News, July 12, 2024.

43 NATO, “Defence Expenditure of NATO Countries (2014-2024),” June 17, 2024; and CRS meetings with Canadian

officials at the Department of National Defence and Global Affairs Canada, September 2024.

44 For information on Canada’s defense procurement projects, see Government of Canada, “Defence Equipment

Purchases and Upgrades,” October 21, 2024, https://www.canada.ca/en/services/defence/defence-equipment-purchasesupgrades.html.

45 Philippe Lagassé and Justin Massie, “Don’t Count on Us: Canada’s Military Unreadiness,” War on the Rocks, April

11, 2024.

Congressional Research Service

7

Canada: Background and U.S. Relations

assessed that about 54% of Canada’s naval fleet, 51% of its air force fleet, and 51% of its army

land fleet was not in condition to be used for operations or training.46

Some Members of Congress have expressed disappointment in Canada’s failure to meet the

NATO defense spending guideline and have urged the Canadian government to accelerate its

defense expenditures to ensure it can meet its obligations to the alliance.47 A provision of the

National Defense Authorization Act for Fiscal Year 2024 (NDAA, P.L. 118-31) directs the

Secretary of Defense to take into consideration whether or not a country has met the NATO

defense spending guideline when making decisions related to U.S. military basing, training, and

exercises.48

Support for Ukraine

Canada has provided a range of military and other support to Ukraine since Russia seized Crimea

in 2014. Under Operation UNIFIER, launched in 2015, the Canadian Armed Forces have trained

more than 43,000 Ukrainian military personnel in a range of basic and advanced military skills.49

Although the Canadian Armed Forces suspended training operations in Ukraine after Russia’s

2022 invasion, they are now training Ukrainian troops in the UK, Poland, and Latvia. Since

February 2022, Canada has committed to providing more than C$4.5 billion ($3.3 billion) in

military assistance to Ukraine, with deliveries scheduled to continue through 2028.50 To

demonstrate Canada’s longer-term support for Ukraine, Prime Minister Trudeau and Ukrainian

President Volodymyr Zelenskyy signed a 10-year bilateral security cooperation agreement in

February 2024.51 Canada also supported the establishment of NATO Security Assistance and

Training for Ukraine, a new command announced at the July 2024 NATO Summit that is intended

to coordinate allies’ long-term security assistance for Ukraine. Pierre Poilievre has asserted that a

Conservative Party government would “continue to support Ukraine in its defense against

Russia’s illegal invasion,” but he has not committed to honoring the security cooperation

agreement signed by Trudeau.52

In addition to military support, Canada has committed C$12.4 billion ($9.1 billion) in loans and

other economic assistance, C$652 million ($479 million) in development and stabilization

assistance, and C$358.2 million ($263 million) in humanitarian assistance for Ukraine.53 As of

April 2024, Canada also had approved emergency temporary resident visas for more than 963,000

Ukrainians, some 298,000 of whom had arrived in Canada to join the approximately 1.4 million

46 Government of Canada, Department of National Defence and Canadian Armed Forces, 2023-24 Departmental

Results Report, December 23, 2024, pp. 26 and 36.

47 See, for example, Letter from Sen. Jeanne Shaheen, Sen. Thom Tillis, and Sen. Benjamin L. Cardin et al. to

Honourable Justin Trudeau, Prime Minister, May 23, 2024, https://www.romney.senate.gov/wp-content/uploads/2024/

05/shaheen-tillis_canada_defense_spending_letter.pdf.

48 P.L. 118-31, §1250; 10 U.S.C. §113 note.

49 Government of Canada, Department of National Defence, “Operation UNIFIER,” November 20, 2024.

50 Government of Canada, Department of National Defence, “Canadian Donations and Military Support to Ukraine,”

November 7, 2024.

51 Government of Canada, Global Affairs Canada, “Agreement on Security Cooperation Between Canada and

Ukraine,” February 26, 2024.

52 “Pierre Poilievre’s Conservatives Say They Support Ukraine – but Won’t Commit to Keeping Justin Trudeau’s

Latest Agreement with Kyiv,” Toronto Star, February 27, 2024.

53 Government of Canada, Global Affairs Canada, “Economic, Humanitarian and Development Assistance, and

Security and Stabilization Support—Russia’s Invasion of Ukraine,” September 9, 2024.

Congressional Research Service

8

Canada: Background and U.S. Relations

Ukrainian-Canadians in the country prior to Russia’s full-scale invasion.54 Similar to U.S. and

European allies, Canada has restricted transactions with Russia’s financial and energy sectors, and

imposed visa and financial sanctions on 1,509 Russian individuals and 646 Russian entities that

are connected to Russia’s war on Ukraine.55

Relations with the People’s Republic of China and the Indo-Pacific

After taking office in 2015, the Liberal Party government initially sought to strengthen ties with

the People’s Republic of China, in part to reduce Canada’s economic dependence on the United

States.56 Canada-PRC ties have deteriorated since December 2018, when Canada arrested Meng

Wanzhou, an executive at the Chinese technology company Huawei, to comply with an

extradition request from the United States. In apparent retaliation for Meng’s arrest, the PRC

detained two Canadians, Michael Kovrig and Michael Spavor, holding them for nearly three

years. In September 2021, the PRC released the “two Michaels,” as they are widely known, hours

after Meng reached a deferred prosecution agreement with U.S. prosecutors that allowed her to

return to China. Relations have continued to decline as Canada has investigated alleged PRC

activities inside Canada, including industrial espionage, intimidation of human rights activists and

other dissidents within diaspora communities, and interference in Canadian politics (discussed

above).57

Canadian criticism of the PRC’s human rights record also has contributed to bilateral tensions. In

May 2020, Canada joined the United States, the UK, and Australia to express “deep concern”

about China’s decision to impose a new national security law on Hong Kong.58 Since then,

Canada has suspended its extradition treaty with Hong Kong, placed restrictions on sensitive

exports to Hong Kong, and created new pathways to permanent residence in Canada to facilitate

the immigration of Hong Kong residents. Canadian officials also have expressed concerns about

the PRC’s treatment of Uyghurs and other Turkic Muslims in northwest China’s Xinjiang region,

which the House of Commons unanimously recognized as “genocide” in February 2021.59 The

PRC responded by accusing the House of Commons of having “deliberately smeared China” and

“grossly interfered in China’s internal affairs.”60

In November 2022, Canada released an Indo-Pacific Strategy describing the PRC as an

“increasingly disruptive global power” that disregards international rules and norms and is

seeking to shape the international order “into a more permissive environment for interests and

54 Government of Canada, Immigration, Refugees and Citizenship Canada, “Canada-Ukraine Authorization for

Emergency Travel: Key Figures,” July 26, 2024; and Max Stick and Feng Hou, “A Sociodemographic Profile of

Ukrainian-Canadians,” Statistics Canada, April 28, 2022.

55 Canada also has imposed sanctions on 483 individuals and 60 entities in Ukraine, 221 individuals and 77 entities in

Belarus, and 16 individuals and 7 entities in Moldova tied to the Russian invasion. Government of Canada, Global

Affairs Canada, “Sanctions—Russian Invasion of Ukraine,” December 10, 2024.

56 Prime Minister of Canada Justin Trudeau, “Joint Statement Between Canada and the People’s Republic of China,”

September 23, 2016; and Government of Canada, Department of Finance, Investing in Middle Class Jobs, Fall

Economic Statement 2018, pp. 63-65, November 21, 2018.

57 See, for example, Royal Canadian Mounted Police, “Hydro-Québec Employee Charged with Espionage,” November

14, 2022; and House of Commons of Canada, Special Committee on the Canada-People’s Republic of China

Relationship, The Chinese Communist Party’s Overseas Police Stations, interim report, November 2023.

58 U.S. Department of State, Office of the Spokesperson, “Joint Statement on Hong Kong,” May 28, 2020.

59 Parliament of Canada, House of Commons of Canada, Vote No. 56, 43 rd Parl., 2nd sess., February 22, 2021.

60 Ministry of Foreign Affairs of the People’s Republic of China, “Foreign Ministry Spokesperson Wang Wenbin’s

Regular Press Conference on February 23, 2021,” February 24, 2021.

Congressional Research Service

9

Canada: Background and U.S. Relations

values that increasingly depart from [those of Canada].”61 The strategy calls for Canada to

increase its diplomatic, economic, and military engagement in the Indo-Pacific region and to push

back against PRC behaviors that undermine international norms, such as arbitrary detentions,

economic coercion, and actions that threaten the status quo in the Taiwan Strait.

The Canadian government has allocated C$2.3 billion ($1.7 billion) for the first five years of the

strategy’s implementation. Among other initiatives, Canada has concluded a trade agreement with

Indonesia, forged new defense and intelligence partnerships throughout the region, and deployed

three frigates each year (up from two previously) to maintain a near constant presence in the

Indo-Pacific.62 These Canadian frigates occasionally have participated in the U.S. Navy’s routine

transits through the Taiwan Strait.

Canada has faced some setbacks in advancing its Indo-Pacific strategy. Bilateral relations with

India—which the strategy characterizes as a critical partner for achieving Canada’s objectives in

the region—have deteriorated amid Canadian government allegations that agents of the

government of India have engaged in acts of transnational repression, including murder, inside

Canada.63 Canada also has been unsuccessful to date in its efforts to join the Australia, UK,

United States (AUKUS) security pact for the Indo-Pacific, launched in September 2021, or the

Indo-Pacific Economic Framework for Prosperity (IPEF), launched by the United States and 13

regional partners in May 2022.64

In addition to setting objectives in the region, Canada’s Indo-Pacific Strategy states that Canada

will take steps domestically to defend against PRC economic coercion and foreign interference.

Among other actions, the Canadian government has prohibited Canadian telecommunications

providers from using products or services from Chinese firms like Huawei and ZTE in their fifth

generation (5G) networks; restricted investment by foreign state-owned enterprises in Canada’s

critical minerals sector; and imposed tariffs on electric vehicles, steel, and aluminum imports

from China (see “PRC Automotive Imports and Investments”).65 The Canadian government also

has enacted legislation intended to combat foreign interference by creating new criminal offenses,

providing additional powers to the Canadian Security Intelligence Service, and establishing a

61 Government of Canada, Global Affairs Canada, Canada’s Indo-Pacific Strategy, 2022, p. 10.

62 Government of Canada, Global Affairs Canada, Canada’s Indo-Pacific Strategy, 2022 to 2023 Implementation

Update, 2024; and Government of Canada, Global Affairs Canada, “Joint Statement by the Government of the

Republic of Indonesia and the Government of Canada on the Conclusion of the Negotiations of the Indonesia-Canada

Comprehensive Economic Partnership Agreement,” December 2, 2024.

63 Prime Minister of Canada Justin Trudeau, “Statement by the Prime Minister on the Ongoing Investigation on Violent

Criminal Activity Linked to the Government of India,” October 14, 2024. Also see CRS Insight IN12292, Alleged

Indian Role in Transnational Assassination Plots, by K. Alan Kronstadt.

64 Tim Kelly, “Canada in Talks About Joining Expanded AUKUS, Defence Chief Blair Says,” Reuters, September 13,

2024; and Margaret Spiegelman, “Canada Remains Committed to IPEF – and Still Outside Looking In,” Inside U.S.

Trade, November 9, 2023. Also see CRS In Focus IF12373, Indo-Pacific Economic Framework for Prosperity (IPEF),

by Cathleen D. Cimino-Isaacs, Kyla H. Kitamura, and Mark E. Manyin, and CRS Report R47599, AUKUS Pillar 2

(Advanced Capabilities): Background and Issues for Congress, by Luke A. Nicastro.

65 Government of Canada, Innovation, Science and Economic Development Canada, “Policy Statement – Securing

Canada’s Telecommunications System,” May 19, 2022; Government of Canada, Innovation, Science and Economic

Development Canada, “Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals

under the Investment Canada Act,” October 28, 2022; Government of Canada, Department of Finance Canada,

“Canada Implementing Measures to Protect Canadian Workers and Key Economic Sectors from Unfair Chinese Trade

Practices,” press release, August 26, 2024.

Congressional Research Service

10

Canada: Background and U.S. Relations

foreign agent registry.66 Canada’s Conservative Party had advocated for many of these policies

before they ultimately were adopted.67

Congress has demonstrated interest in coordinating with Canada on approaches to the IndoPacific and China. For example, a provision of the Servicemember Quality of Life Improvement

and National Defense Authorization Act for Fiscal Year 2025 (P.L. 118-159; FY2025 NDAA)

expresses the sense of Congress that the Secretary of Defense should collaborate with Canada and

other NATO allies to build connectivity and advance a shared vision for the Indo-Pacific.68 In

September 2023, the Congressional-Executive Commission on China invited Canadian Member

of Parliament Michael Chong to testify at a hearing on “Countering China’s Global Transnational

Repression Campaign.”69 The commission’s chairs also have called for enhanced coordination

with Canada (and Mexico) to prevent the importation into North America of goods made with

forced labor, citing P.L. 117-78, commonly known as the Uyghur Forced Labor Prevention Act,

as a potential model.70

Arctic Policy71

With 40% of its land mass and 75% of its coastline located in the Arctic, Canada has substantial

interests in the changing region.72 Temperatures in the Arctic have warmed nearly four times

faster than the global average since 1979.73 The resulting decline in sea ice is gradually opening

the region to increased shipping, tourism, and resource extraction, among other activities.

Although these changes may provide commercial opportunities for Arctic countries and

communities, they also present new challenges, ranging from environmental degradation to

increased geopolitical competition.74

Canada traditionally has viewed the Arctic as a region of international cooperation. It was one of

the founding members of the Arctic Council, which brings together the eight Arctic states, six

organizations representing Indigenous peoples, and various observers to promote cooperation on

sustainable development and environmental protection.75 Under the auspices of the council, the

66 Parliament of Canada, Bill C-70, https://www.parl.ca/documentviewer/en/44-1/bill/C-70/royal-assent.

67 See, for example, Parliament of Canada, House of Commons of Canada, “Vote No. 23,” 43 rd Parl., 2nd sess.,

November 18, 2020, https://www.ourcommons.ca/members/en/votes/43/2/23; and House of Commons of Canada,

Standing Committee on Natural Resources, Conservative Dissenting Report – From Mineral Exploration to Advanced

Manufacturing: Developing Value Chains for Critical Minerals in Canada, June 2021.

68 P.L. 118-159, §1311.

69 U.S. Congress, Joint Congressional-Executive Commission on China, Countering China’s Global Transnational

Repression Campaign, 118th Cong., 1st sess., September 12, 2023.

70 Letter from Rep. Chris Smith, chair, and Sen. Jeff Merkley, cochair, Congressional-Executive Commission on China

et al. to Honorable Katherine Tai, United States Trade Representative, Secretary Raquel Buenrostro, Mexican

Secretariat of Economy, and Honourable Mary Ng, Canadian Minister of Export Promotion, September 18, 2024,

https://www.cecc.gov/sites/evo-subsites/www.cecc.gov/files/2024-09/

USMCA%20Trade%20Ministers%209.17.24.pdf.

71 Caitlin Keating-Bitonti, CRS Specialist in Natural Resources Policy, contributed to this section. For more

information on Arctic issues and U.S. policy in the Arctic, see CRS Report R41153, Changes in the Arctic:

Background and Issues for Congress, coordinated by Ronald O'Rourke.

72 Government of Canada, Canada’s Arctic and Northern Policy Framework, 2019, p. 81.

73 Mika Rantanen et al., “The Arctic Has Warmed Nearly Four Times Faster than the Globe Since 1979,”

Communications Earth & Environment, vol. 3 (August 11, 2022).

74 For additional information, see CRS Report R41153, Changes in the Arctic: Background and Issues for Congress,

coordinated by Ronald O'Rourke.

75 The other Arctic states are the United States, Denmark (due to Greenland), Iceland, Norway, Sweden, Finland, and

Russia.

Congressional Research Service

11

Canada: Background and U.S. Relations

Arctic states have negotiated three binding instruments: a 2011 Agreement on Cooperation on

Aeronautical and Maritime Search and Rescue in the Arctic, a 2013 Agreement on Cooperation

on Marine Oil Pollution Preparedness and Response in the Arctic, and a 2017 Agreement on

Enhancing International Arctic Scientific Cooperation.76 Russia’s war against Ukraine has

affected the Arctic Council’s functioning, however, and raised questions about its future. Canada

has participated in some multilateral negotiations on Arctic matters outside the council, including

talks that resulted in a 2018 Agreement to Prevent Unregulated High Seas Fisheries in the Central

Arctic Ocean.77

At the same time, Canada has sought to defend its sovereignty in the Arctic. In 2019, for example,

Canada filed a submission with the UN Commission on the Limits of the Continental Shelf to

establish the outer limits (i.e., beyond 200 nautical miles of shoreline) of its juridical continental

shelf (commonly known as the extended continental shelf) for the purpose of exploring it and

exploiting its natural resources. In total, Canada’s submission includes 1.2 million square

kilometers of the Arctic seafloor, including the North Pole.78 The submission, based on scientific

data, overlaps in some areas with other Arctic states’ continental shelves, including those of

Russia and Denmark.79 The U.S. extended continental shelf, as announced by the U.S. State

Department in December 2023, also overlaps with Canada’s submission.80 Canada has pledged to

resolve such overlaps “peacefully and in accordance with international law.”81 To date, the

Commission on the Limits of the Continental Shelf has not offered a recommendation on

Canada’s submission in respect of the Arctic Ocean.82

In September 2024, Canada and the United States announced the creation of a joint task force to

negotiate an unresolved maritime boundary in the Beaufort Sea, located between Alaska and

Canada’s High Arctic islands.83 The disputed boundary stems from differing legal interpretations

of an 1825 treaty between Russia and the UK, the rights of which were inherited, respectively, by

the United States and Canada. The U.S. and Canadian governments last sought to negotiate the

boundary in the late 1970s, spurred by the potential for offshore oil and gas. Those talks

76 All three agreements are available at https://arctic-council.org/en/explore/work/cooperation/.

77 The 2018 Agreement to Prevent Unregulated High Seas Fisheries in the Central Arctic Ocean, which entered into

force in June 2021, is available at https://www.dfo-mpo.gc.ca/international/agreement-accord-eng.htm.

78 Government of Canada, Global Affairs Canada, “Canada Marks Major Milestone in Defining Its Continental Shelf in

Arctic Ocean,” press release, May 23, 2019; and United Nations Commission on the Limits of the Continental Shelf

(CLCS), “Outer Limits of the Continental Shelf Beyond 200 Nautical Miles from the Baselines, Submissions to the

Commission: Partial Submission by Canada,” June 28, 2024, https://www.un.org/depts/los/clcs_new/submissions_files/

submission_can1_84_2019.html.

79 In December 2022, the Canadian government filed an addendum to its original submission in response to a March

2021 Russian addendum that “greatly expanded the size” of Russia’s continental shelf and “tripled the area that

overlaps” with Canada’s continental shelf. Government of Canada, Global Affairs Canada, Canada’s Arctic Foreign

Policy, December 6, 2024, https://www.international.gc.ca/gac-amc/publications/transparency-transparence/arcticarctique/arctic-policy-politique-arctique.aspx?lang=eng. Hereinafter, Canada’s Arctic Foreign Policy, 2024.

80

U.S. Department of State, The Outer Limits of the Extended Continental Shelf of the United States of America:

Executive Summary, December 19, 2023, pp. 13 and 19. For more information, see CRS Report R47912, Outer Limits

of the U.S. Extended Continental Shelf: Background and Issues for Congress, by Caitlin Keating-Bitonti.

81 Canada’s Arctic Foreign Policy, 2024.

82 CLCS, “Submissions, Through the Secretary-General of the United Nations, to the Commission on the Limits of the

Continental Shelf, Pursuant to Article 76, Paragraph 8, of the United Nations Convention on the Law of the Sea of 10

December 1982,” October 7, 2024, https://www.un.org/depts/los/clcs_new/commission_submissions.htm.

Recommendations made by the CLCS are “final and binding” (see Article 76, paragraph 8 of United Nations

Convention on the Law of the Sea).

83 U.S. Department of State, “Joint Statement on Creation of Joint Task Force to Negotiate Beaufort Sea Boundary,”

September 24, 2024.

Congressional Research Service

12

Canada: Background and U.S. Relations

ultimately stalled due to differing U.S. and Canadian government views over whether or not to

include the countries’ other unresolved maritime boundaries in the scope of the negotiations.84

Canada’s government also continues to argue that the various channels that pass through the

country’s 36,000-island Arctic Archipelago, commonly referred to as the Northwest Passage, are

internal waters subject to Canadian control.85 The United States, the European Union (EU), and

others maintain the Northwest Passage is an international strait through which foreign vessels

have a right to transit. The U.S.-Canada dispute over the passage has been mostly dormant since

1988, when the United States pledged that all navigation by U.S. icebreakers through the passage

would be undertaken with the consent of the Canadian government and Canada agreed to

facilitate such navigation.86

Exercising effective control over the Canadian Arctic has become more difficult as access to, and

interest in, the region has grown. Canada asserts that it has observed a general increase in Arctic

maritime activity, which has included regular deployments of dual use (i.e., civilian and military)

PRC research vessels and surveillance platforms to the region.87 In November 2022, the auditor

general of Canada reported that “the federal organizations that are responsible for safety and

security in the Arctic region do not have full awareness of maritime activities in Arctic waters and

are not ready to respond to increased surveillance requirements.”88 This is reportedly due to

incomplete surveillance, insufficient data and information sharing, and outdated equipment.

To bolster its presence in the Arctic, Canada has begun upgrading infrastructure and procuring

new equipment, including ice breakers, offshore patrol vessels, and fighter and patrol aircraft.

Canada is also coordinating with the United States to enhance Arctic defenses as part of the

ongoing modernization of NORAD (see “NORAD”), and collaborating with the United States

and Finland on the production of new polar icebreakers and other Arctic capabilities.89 Canada’s

Arctic Foreign Policy, released in December 2024, also calls for increased information sharing

with NATO allies and continued cooperation with northern Indigenous Peoples and territorial and

provincial governments to enhance domain awareness.90

U.S.-Canada Relations

In February 2021, President Biden and Prime Minister Trudeau announced the Roadmap for a

Renewed U.S.-Canada Partnership, which pledged to revitalize and expand bilateral relations.91

84 The United States and Canada have four unresolved (or partially resolved) maritime boundaries within 200 nautical

miles of their shores in the Beufort Sea, the Gulf of Maine, and two areas off the Pacific Coast: the Juan de Fuca Strait

(located offshore of Washington and Vancouver Island, Canada) and the Dixon Entrance (located offshore of

southeastern Alaska and British Columbia, Canada). Michael Byers and Andreas Østhagen, “Why Does Canada Have

So Many Unresolved Maritime Boundary Disputes?,” The Canadian Yearbook of International Law, vol. 54 (2017).

The countries also have two unresolved boundaries beyond 200 nautical miles (in the Arctic and northern Atlantic

regions). U.S. Department of State, The Outer Limits of the Extended Continental Shelf of the United States of America:

Executive Summary, December 19, 2023, pp. 13, 19, and 25.

85 Canada’s Arctic Foreign Policy, 2024.

86 Agreement Between the Government of Canada and the Government of the United States of America on Arctic

Cooperation, January 11, 1988, https://www.treaty-accord.gc.ca/text-texte.aspx?id=101701.

87 Canada’s Arctic Foreign Policy, 2024.

88 Office of the Auditor General of Canada, Arctic Waters Surveillance, November 15, 2022, p. 7.

89 White House, “Biden-Harris Administration Announces New Polar Partnership ‘ICE Pact’ Alongside Finland and

Canada,” press release, July 11, 2024.

90 Canada’s Arctic Foreign Policy, 2024.

91 White House, “Roadmap for a Renewed U.S.-Canada Partnership,” February 23, 2021.

Congressional Research Service

13

Canada: Background and U.S. Relations

U.S.-Canada ties had been strained in the preceding four years as the countries adopted divergent

approaches to a range of issues and the Trump Administration challenged many long-standing

pillars of the bilateral relationship, including common commitments to NATO and to free trade in

North America.92 Although some policy disagreements have persisted since the launch of the

roadmap (see “Trade and Investment Issues” and “Cross-Border Energy Infrastructure Disputes”),

the U.S. and Canadian governments have taken steps to modernize NORAD, strengthen crossborder law enforcement, and accelerate the deployment of low-carbon technologies, among other

ongoing areas of cooperation (see “Security Cooperation” and “Climate Change Collaboration”).

During a March 2023 speech to the Canadian Parliament, President Biden asserted that “no two

nations on Earth are bound by such close ties” and assured Canadians they would “always be able

to count on the United States of America.”93

Bilateral relations are entering a renewed era of uncertainty after Donald Trump’s November

2024 election to a second term. During the presidential campaign, Trump asserted that he would

not defend NATO allies that did not dedicate sufficient resources to defense, and proposed a

minimum 10% tariff on all U.S. imports.94 During the presidential transition, President-elect

Trump threatened to impose a blanket 25% tariff on all imports from Canada until the Canadian

government takes unspecified actions to combat cross-border flows of illicit narcotics and

migrants.95 (For information on such flows, see “Border Issues.”) Potential disruptions to U.S.Canada trade are viewed as a major threat to the Canadian economy by many in Canada given

Canada’s deep economic integration with the United States (see “Trade and Investment Issues”).96

Prime Minster Trudeau reportedly has sought to engage with President-elect Trump on ways the

United States and Canada can work together to address shared challenges while not ruling out

potential retaliatory measures.97 Trudeau also has reestablished a cabinet committee on CanadaU.S. relations to focus on critical bilateral issues.

In a December 2024 poll, 72% of Canadians reported they were “pessimistic and worried” about

the next four years with Trump’s anticipated return to the U.S. presidency.98 Some 76% of those

surveyed asserted that they expect a second Trump Administration will hurt Canada’s economy,

65% asserted that it will hurt global peace and stability, and 50% asserted that it will hurt

Canada’s overall security in the world. In the face of potential U.S. tariffs, 49% of Canadians

argued that the Canadian government should “play hardball” and not allow Canada to “be

bullied,” 33% contended that Canada should try to negotiate with President-elect Trump, and

10% maintained that Canada should concede to U.S. demands to avoid tariffs. At the same time,

54% of those surveyed asserted that Canada needs to do more to secure its border with the United

92 See, for example, Arthur Beesly, Alex Barker, and Demetri Sevastopulo, “Donald Trump Fails to Endorse NATO’s

Mutual Defence Pledge,” Financial Times, May 25, 2017; and Heather Long, “Trump Threatens to Leave Canada

Behind on NAFTA, Warns Congress Not to ‘Interfere,’” Washington Post, September 1, 2018.

93 White House, “Remarks by President Biden in Address to the Canadian Parliament,” March 24, 2023.

94 Meg Kinnard and Michelle L. Price, “Donald Trump Stands by Remarks About Not Defending NATO Members

After Backlash,” Associated Press, February 14, 2024; and “Read the Full Transcripts of Donald Trump’s Interviews

with TIME,” TIME, April 30, 2024.

95 Jill Colvin and Rob Giles, “Trump Threatens to Impose Sweeping New Tariffs on Mexico, Canada and China on

First Day in Office,” Associated Press, November 26, 2024.

96 CRS meetings with Canadian government officials and private sector stakeholders, September 2024; and Statistics

Canada data, reported by Trade Data Monitor, accessed November 13, 2024.

97 Mickey Djuric, “Trump 2.0 Offers Trudeau a Make-or-Break Moment,” Politico Pro, November 28, 2024; and Sue

Allan and Mickey Djuric, “What Trudeau Told Trump at Mar-a-Lago,” Politico Pro, December 1, 2024.

98 Angus Reid Institute, “Tariffs, Border Demands & Defence: Half of Canadians Say This Country Should Play

Hardball Against Trump’s Threats,” December 5, 2024.

Congressional Research Service

14

Canada: Background and U.S. Relations

States and 51% asserted that Canada is moving too slowly to meet its NATO defense spending

commitment.99

Security Cooperation

According to the U.S. State Department, “U.S. defense arrangements with Canada are more

extensive than with any other country.”100 In addition to their mutual defense commitments under

NATO and close intelligence partnership as members of the Five Eyes alliance, the United States

and Canada cooperate on continental defense through NORAD and coordinate extensively on law

enforcement matters (see “NORAD” and “Border Issues”).

The U.S. and Canadian defense industries are also highly integrated. Congress has designated

Canadian individuals and organizations as part of the National Technology and Industrial Base

(10 U.S.C. §4801) and has designated Canadian firms as “domestic sources” for the purposes of

the Defense Production Act of 1950 (50 U.S.C. §§4501 et seq.).101 Likewise, Congress granted

special treatment to Canada under the Arms Export Control Act of 1976 (22 U.S.C. §§2751 et

seq.), reflected in the International Traffic in Arms Regulations, which provide licensing

requirement exemptions for some—but not all—U.S. defense exports to Canada and temporary

U.S. defense imports from Canada (22 C.F.R. §126.5).

NORAD

NORAD, established in 1958, is charged with monitoring all aerial and maritime threats to the

United States and Canada and defending North American airspace. NORAD is unique in the

world as a binational command that has a U.S. Commander and a Canadian Deputy Commander

who are appointed by, and responsible to, both the U.S. President and the Canadian Prime

Minister. Likewise, NORAD headquarters at Peterson Space Force Base in Colorado is composed

of integrated staff from both countries. This binational structure allows the United States and

Canada to pool resources, avoiding duplication of some efforts and increasing North America’s

overall defense capabilities. Nevertheless, because the U.S. and Canadian governments want to

maintain their abilities to take unilateral action, some NORAD responsibilities and authorities

overlap with those of U.S. Northern Command and Canadian Joint Operations Command.

In 2021, the United States and Canada issued a joint statement on NORAD modernization. The

statement recognized the challenges posed by “growing strategic competition, rapid

advancements in technology, and ongoing changes in climate” and asserted that NORAD must be

able to detect and identify threats earlier and respond to them faster and more decisively.102 The

countries identified several priority areas for new investments, including situational awareness,

especially in the northern and maritime regions of North America; modernized command and

control systems; improved capabilities to deter and defeat evolving aerospace threats; and

research and development.

In 2022, the Canadian government announced plans to invest C$4.9 billion (about $3.6 billion)

over six years and C$38.6 billion (about $28.4 billion) over 20 years to modernize NORAD’s

99 Ibid.

100 U.S. Department of State, Bureau of Western Hemisphere Affairs, “U.S. Relations with Canada,” August 19, 2022.

101 For more information on the National Technology and Industrial Base and the Defense Production Act, see CRS In

Focus IF11311, Defense Primer: The National Technology and Industrial Base, by Luke A. Nicastro; and CRS Report

R43767, The Defense Production Act of 1950: History, Authorities, and Considerations for Congress, by Alexandra G.

Neenan and Luke A. Nicastro.

102 U.S. Department of Defense (DOD), “Joint Statement on NORAD Modernization,” August 17, 2021.

Congressional Research Service

15

Canada: Background and U.S. Relations

capabilities.103 The funding is to be allocated to five broad priorities: surveillance systems,

modern technology, air weapons systems, infrastructure and support capabilities, and science and

technology. Among other expenditures, Canada has committed to procuring two next-generation

over-the-horizon radar systems to enhance early warning and domain awareness of the Arctic

approaches to North America. Canada also has committed to upgrading infrastructure at bases

across the country, including four forward operating locations in the north, to support the arrival

of Canada’s new fleet of 88 F-35 Joint Strike Fighters and meet other Canadian, U.S., and

NORAD military requirements.104 Nevertheless, over the past two years, Canada has fallen short

of meeting all of its NORAD commitments and obligations, partly due to equipment maintenance

requirements and personnel shortages that have hindered Canada’s ability to deploy aircraft and

staff NORAD positions.105

Historically, NORAD has been funded through a 60% to 40% split between the United States and

Canada.106 It is not possible to compare the countries’ current contributions, however, since the

U.S. Department of Defense (DOD) budget does not designate a specific funding level for

NORAD operations or modernization. Although the DOD budget includes funding for military

systems that may support NORAD once fielded, DOD does not procure those systems solely for

NORAD. In March 2024 written testimony to Congress, General Gregory M. Guillot, the

Commander of NORAD and U.S. Northern Command, called for continued investments in overthe-horizon radar and an integrated undersea surveillance system, among other capabilities

intended to enhance air and maritime domain awareness and limit competitors’ abilities to

“approach North America undetected.”107

Congress has placed increased focus on continental defense issues since early 2023, when a highaltitude balloon passed over North America allegedly surveilling strategic sites for the PRC.108

The 118th Congress adopted resolutions condemning the PRC’s use of a high-altitude surveillance

balloon over U.S. territory (H.Res. 104 and S.Res. 66) and held several hearings to examine

NORAD’s response to the incident and assess NORAD’s capabilities and funding

requirements.109 S.Rept. 118-81, incorporated into the explanatory statement accompanying the

103 The C$38.6 billion commitment is on an “accrual basis,” which records the cost of acquiring an asset when it is put

into service and spread over its useful life rather than the year the payments are made. For information on planned

investments and timelines, see Government of Canada, Department of National Defence, “NORAD Modernization

Project Timelines,” fact sheet, March 24, 2023, https://www.canada.ca/en/department-national-defence/services/

operations/allies-partners/norad/norad-modernization-project-timelines.html.

104 Canada has participated in the U.S.-led F-35 Joint Strike Fighter program since 1997 but did not conclude its

advanced fighter procurement process until January 2023. Canada allocated C$19 billion ($14 billion) for the aircraft,

sustainment, and associated equipment and facilities. The 88 F-35s are to be delivered to Canada between 2026 and

2032. Government of Canada, Department of National Defence; “Announcement Regarding the F-35 Acquisition,”

January 9, 2023.

105 Government of Canada, Department of National Defence and Canadian Armed Forces, 2023-24 Departmental

Results Report, December 23, 2024, p. 12.

106

CRS communication with NORAD, May 17, 2023.

107 General Gregory M. Guillot, Commander, United States Northern Command and North American Aerospace

Defense Command, “Statement Before the Senate Armed Services Committee,” March 14, 2024, p. 12.

108 Jim Garamone, “F-22 Safely Shoots Down Chinese Spy Balloon off South Carolina Coast,” DOD News, February 4,

2023.

109 See, for examples, U.S. Congress, Senate Committee on Appropriations, The People’s Republic of China’s High

Altitude Surveillance Efforts Against the United States, 118th Cong., 1st sess., February 9, 2023; House Committee on

Armed Services, Security Challenges in North and South America, 118th Cong., 1st sess., March 8, 2023; and Senate

Committee on Armed Services, Subcommittee on Strategic Forces, To Receive Testimony on the Department of

Defense Missile Defense Activities in Review of the Defense Authorization Request for Fiscal Year 2024 and the Future

Years Defense Program, 118th Cong., 1st sess., May 9, 2023.

Congressional Research Service

16

Canada: Background and U.S. Relations

Department of Defense Appropriations Act, 2024 (P.L. 118-47, Division A), recommended

additional funding to accelerate the deployment of several radar and sensor systems intended to

improve homeland defense capabilities and ensure similar incidents do not occur in the future.110

Border Issues

The United States and Canada coordinate extensively on efforts to secure their shared 5,525-mile

border. The 2011 Beyond the Border declaration and action plan have provided the framework for

bilateral cooperation, including efforts to address potential threats, facilitate legal commercial and

passenger traffic, enhance cross-border law enforcement cooperation, and strengthen and protect

critical infrastructure.111 The declaration and action plan have resulted in several initiatives,

including

•

•

•

•

•

implementation of a 2009 Framework Agreement on Integrated Cross-Border

Maritime Law Enforcement Operations (Shiprider program) that allows Royal

Canadian Mounted Police (RCMP) and U.S. Coast Guard personnel to jointly

crew marine vessels to enforce the law on both sides of the border;

a 2012 Visa and Immigration Information Sharing Agreement that allows for the

automated sharing of biographic and biometric information;

a 2013 entry/exit program that allows data on entry to one country to serve as a

record of exit from the other;

a 2015 Agreement on Land, Rail, Marine, and Air Transport Preclearance that

allows customs and immigration officials to clear travelers and cargo in their

countries of origin; and

a 2016 accord that allows for the exchange of information on individuals who

present a clear threat, including the countries’ respective “no-fly” lists.112

Canadian concerns about privacy and sovereignty delayed implementation of some of these

initiatives.113 Consequently, the United States and Canada did not begin exchanging information

on all U.S. and Canadian citizens under the entry/exit program until July 2019 and the Agreement

on Land, Rail, Marine, and Air Transport Preclearance did not enter into force until August 2019.

The COVID-19 pandemic led the U.S. and Canadian governments to close their shared land

border to all nonessential travel in March 2020.114 Although both governments generally sought

to maintain bilateral trade flows, the border restrictions took an economic and social toll on both

countries, particularly in border communities.115 Canada ultimately allowed vaccinated U.S.

citizens to begin nonessential travel to Canada again in August 2021, and the United States

reopened the land border to vaccinated Canadians for nonessential travel in November 2021.116

110 S.Rept. 118-81, p. 10.

111 The Beyond the Border declaration and action plan are available at https://www.dhs.gov/sites/default/files/

publications/us-canada-btb-action-plan.pdf.

112 U.S. Department of Homeland Security (DHS), “Beyond the Border Fact Sheet,” January 2017.

113 Evan Dyer, “Ottawa Gets an Earful on Proposed Expansion of U.S. Border Pre-clearance Powers,” CBC News,

August 6, 2017; and John Paul Tasker, “Ottawa’s Push to Share More Border-Crossing Data with U.S. Raising Red

Flags over Privacy,” CBC News, June 28, 2018.

114 DHS, “Joint Statement on U.S.-Canada Joint Initiative: Temporary Restriction of Travelers Crossing the US-Canada

Land Border for Non-Essential Purposes,” March 20, 2020.

115 Western Washington University, Border Policy Research Institute, Border Barometer, April 9, 2021.

116 Canadian Border Services Agency, “Travel Advisory: Reminder—On August 9th, Fully Vaccinated United States

(continued...)

Congressional Research Service

17

Canada: Background and U.S. Relations

Canadians could fly into the United States throughout the pandemic. Canada and the United

States ended their vaccination requirements for all foreign travelers in October 2022 and May

2023, respectively.117

Some Members of Congress have raised concerns about an increase in unauthorized migrant

crossings and other security challenges since border travel restrictions have been lifted.118 The

number of individuals encountered by U.S. Border Patrol after crossing into the United States

from Canada between ports of entry rose from 2,238 in FY2022 to 10,021 in FY2023 and 23,721

in FY2024 (see Figure 1). This increase in the south-bound flow of unauthorized border-crossers

reportedly has been driven by nationals of India, Mexico, and various other countries flying to

Canada and then seeking entry into the United States, sometimes with the assistance of

smugglers.119 Others are seeking to stay in Canada, contributing to record asylum claims.120 Over

the past year, the Canadian government has ended visa-free travel for Mexican nationals,

enhanced scrutiny of visa applications for other visitors to Canada, and sought to crack down on

fraud and abuse in temporary resident programs in an attempt to address U.S. concerns as well as

the growing backlog of asylum claims in Canada.121

The number of asylum seekers intercepted by the RCMP after crossing into Canada from the

United States between ports of entry has trended in the opposite direction. This northern flow of

asylum seekers surged in 2017, reportedly spurred, in part, by the Trump Administration’s

immigration policies, including a plan to end Temporary Protected Status (TPS) for Haitians.122

Crossings declined during the pandemic but spiked again to nearly 40,000 in 2022 after the U.S.

and Canadian governments lifted border travel restrictions. This post-pandemic surge was

purportedly driven by individuals who had initially sought asylum in the United States but

determined they may have better odds of obtaining asylum and other support in Canada.123 RCMP

interceptions have declined dramatically since early 2023, when the U.S. and Canadian

governments expanded a 2004 Safe Third-Country Agreement that allows either country to return

to the other asylum seekers who cross the U.S.-Canada land border (see Figure 1). Prior to the

expansion, the agreement did not apply between ports of entry.124

Citizens and Permanent Residents Will Be Able to Enter Canada,” press release, August 6, 2021; and DHS, “Starting

Today Fully Vaccinated Travelers Permitted to Enter U.S. via Land and Ferry Border Crossings,” press release,

November 8, 2021.

117 Government of Canada, Public Health Agency of Canada, “COVID-19 Border Measures,” September 26, 2022; and

White House, “The Biden-Harris Administration Will End COVID-19 Vaccination Requirements for Federal

Employees, Contractors, International Travelers, Head Start Educators, and CMS-Certified Facilities,” May 1, 2023.

118 U.S. Congress, House Committee on Homeland Security, Subcommittee on Oversight, Investigations, and

Accountability, Biden’s Growing Border Crisis: Death, Drugs, and Disorder on the Northern Border, 118th Cong., 1st

sess., March 28, 2023.

119 See, for example, Elizabeth Thompson, “U.S. Border Patrol Reports Record Number of Encounters with Migrants at

the Canadian Border,” CBC News, September 12, 2024.

120 Anna Mehler Paperny, “Canada Hints at Fast-Tracking Refugee Refusals,” Reuters, November 26, 2024.

121 Ibid.; Reuters, “Exclusive—Canada Turning Away More Foreigners, Approving Fewer Visas in Border

Crackdown,” September 3, 2024; and CRS meeting with Canadian government officials, September 24, 2024.

122 See, for example, Dan Levin, “A Surge of Migrants Crossing into Quebec Tests Canada’s Welcome,” New York

Times, August 10, 2017. For more on TPS, see CRS Report RS20844, Temporary Protected Status and Deferred

Enforced Departure, by Jill H. Wilson.

123 See, for example, Reuters, “Insight—Canada Immigration: Why Record Asylum Seekers Are Crossing U.S.

Border,” March 11, 2023.

124 DHS, “United States and Canada Announce Efforts to Expand Lawful Migration Processes and Reduce Irregular

Migration,” press release, March 24, 2023.

Congressional Research Service

18

Canada: Background and U.S. Relations

Figure 1. Encounters and Interceptions at the U.S.-Canada Border Between

Points of Entry: 2016-2024

Sources: U.S. Customs and Border Protection, “Nationwide Encounters” database, November 19, 2024; U.S.

Department of Homeland Security, Office of Homeland Security Statistics, 2022 Yearbook of Immigration Statistics,

p. 94; Government of Canada, Immigration, Refugees and Citizenship Canada, “Asylum Claimants Processed by

Year,” 2017-2024, https://www.canada.ca/en/immigration-refugees-citizenship/services/refugees/asylumclaims.html; and Canadian government data in Stephanie Levitz, “Asylum Seekers Arrested at Illegal Crossings so

Far in 2017 Nearly Half of 2016 Total,” Canadian Press, March 21, 2017.

Notes: U.S. Border Patrol data are reported by U.S. fiscal year while Royal Canadian Mounted Police (RCMP)

data are reported by calendar year. Border Patrol data for FY2020-FY2023 include public health expulsions

under Title 42 of the U.S. Code in addition to apprehensions under Title 8 of the U.S. Code; data for all other

years consist entirely of apprehensions. RCMP data for 2024 cover the first 11 months of the calendar year.

Some Members of Congress also have expressed concerns about an increase in encounters at the

U.S.-Canada border with individuals whose names appear in the Terrorist Screening Dataset—a

U.S. government database of known and suspected terrorists, affiliates, and others deemed to

represent a potential threat to the United States.125 Between FY2022 and FY2024, U.S. Customs

and Border Protection (CBP) averaged 387 encounters with watch-listed individuals at the U.S.Canada border per year, a 72% increase compared to 225 per year on average between FY2017

and FY2019 (prior to the pandemic); these figures may include repeat encounters with some

individuals. All but six (99.5%) of the encounters with watch-listed individuals between FY2022

and FY2024 occurred at U.S. ports of entry, where U.S. authorities may deny such individuals

entry into the United States. The remaining cases occurred between ports of entry; CBP recorded

three encounters with watch-listed individuals at the U.S.-Canada border between ports of entry

between FY2017 and FY2019.126

Canadian authorities assess that organized crime groups in Canada have become producers and

exporters of illicit fentanyl.127 According to a March 2024 U.S. Department of State report, “U.S.

125 See, for example, H.Res. 774. For more information on the Terrorist Screening Dataset, see CRS In Focus IF12669,

The Terrorist Watchlist, by Lisa N. Sacco.

126 U.S. Customs and Border Protection (CBP), “CBP Enforcement Statistics,” December 3, 2024,

https://www.cbp.gov/newsroom/stats/cbp-enforcement-statistics.

127 Government of Canada, Criminal Intelligence Service Canada, 2023 Public Report on Organized Crime, December

15, 2023.

Congressional Research Service

19

Canada: Background and U.S. Relations

law enforcement has stated there is no evidence that Canada is trafficking vast amounts of

fentanyl to the United States.”128 In FY2024, CBP seized 43 pounds of fentanyl at the U.S.Canada border, representing 0.2% of CBP’s total fentanyl seizures for the fiscal year.129

Over the past four years, U.S. and Canadian officials have sought to enhance collaboration on

shared security challenges through the high-level Cross-Border Crime Forum, a Cross-Border

Firearms Task Force, and the Trilateral Fentanyl Commission (in which Mexico also participates).

Memoranda of understanding signed by the U.S. Drug Enforcement Administration and the

RCMP in November 2022 and by the Bureau of Alcohol, Tobacco, Firearms and Explosives and

the Canada Border Services Agency in March 2023 reportedly have allowed for increased

information sharing in support of cross-border investigations into opioid and gun trafficking.130 In

December 2024, the Liberal Party government proposed a C$1.3 billion ($956 million) border

plan intended to increase border surveillance and further enhance operational coordination and

information sharing with the U.S. government.131

A provision of the FY2025 NDAA (P.L. 118-159) directs the Department of Homeland Security

(DHS) to establish a Northern Border Mission Center. The center is to serve as DHS’s “forward

deployed centralized operations support center for domain awareness, information sharing,

intelligence, training, and stakeholder engagement with Federal, State, tribal, local, and

international government partners along the northern border.”132 The joint explanatory statement

accompanying the act also directs the Assistant Secretary of Defense for Homeland Defense and

Hemispheric Affairs to submit a report to the congressional defense committees on the assistance

that DOD provides to CBP and DHS to secure the U.S. northern border.133

Trade and Investment Issues134

The United States and Canada have one of the largest bilateral commercial relationships in the

world, including a highly integrated automotive and energy market. As noted above, the countries

have maintained free trade for more than three decades, first bilaterally under the 1989 U.S.Canada Free Trade Agreement, then trilaterally with Mexico under the 1994 NAFTA and its

successor, the 2020 USMCA.135 Congress approved implementing legislation for USMCA in

December 2019 (P.L. 116-113) and has a role in overseeing USMCA implementation.

In 2023, Canada was the United States’ top partner for combined trade in goods and services—the

United States imported $481.6 billion from Canada and exported $440.9 billion to Canada for a

total of $922.5 billion in bilateral trade.136 In 2023, Canada exported 77% of its goods to the

United States and was the third-largest supplier of goods to the United States, behind Mexico and

128 U.S. Department of State, International Narcotics Control Strategy Report, Volume I: Drug and Chemical Control,

March 2024, p. 88.

129 CBP, “Drug Seizure Statistics,” November 19, 2024, https://www.cbp.gov/newsroom/stats/drug-seizure-statistics.

130 DHS, “The 2023 Canada-U.S. Cross-Border Crime Forum,” April 28, 2023; and Dylan Robertson, “Canada, U.S. to

Share More Data in Fight Against Cross-Border Gun Smuggling, Opioids,” Canadian Press, April 28, 2023.

131 Government of Canada, Public Safety Canada, “Government of Canada Announces Its Plan to Strengthen Border

Security and Our Immigration System,” press release, December 17, 2024.

132 P.L. 118-159, §5611.

133 Joint Explanatory Statement to Accompany the Servicemember Quality of Life Improvement and National Defense

Authorization Act for Fiscal Year 2025, pp. 422-423.

134 Written by Kyla H. Kitamura, CRS Analyst in International Trade and Finance.

135 For more details on USMCA, see CRS Report R44981, The United States-Mexico-Canada Agreement (USMCA).

136 U.S. Bureau of Economic Analysis (BEA), “Table 1.5. U.S. International Trade in Goods and Services by Area and

Country,” December 18, 2024.

Congressional Research Service

20

Canada: Background and U.S. Relations

China.137 Canada imported nearly half of its goods from the United States in 2023 and was the

United States’ top goods export destination—about 18% of U.S. goods exports went to Canada.138

Bilateral investment ties are also substantial. As of 2023, Canada was the third-largest source of

foreign direct investment (FDI) in the United States by stock ($671.7 billion), and nearly half of

Canada’s total FDI was in the United States.139 In 2023, the United States was the largest source

of FDI in Canada, comprising 45.7% of total FDI (C$618.2 billion; about $455 billion).140

As previously noted, President-elect Trump has stated that he may impose a 25% tariff on all

Canadian imports upon entering office on January 20, 2025.141 Given Canada’s deep economic

integration with the United States, some Canadian observers note that actual or potential

disruptions to U.S.-Canada trade would have large negative impacts on the Canadian economy.142

Some analysts have argued that broad U.S. tariffs on Canadian imports would have negative

effects on both Canada and the United States, particularly if Canada were to retaliate.143 Some

Canadian observers have expressed concerns about Canada’s economic reliance on the United

States and negative impacts on Canada resulting from geopolitical tensions between larger

economic powers (e.g., the United States, China, and the EU); such observers have argued that

Canada should enhance cooperation with other “middle power” countries who rely on a rulesbased international trading system in order to enhance Canada’s geopolitical leverage and

position.144 Canada has 15 free trade agreements (FTAs) with 51 countries, encompassing about

60% of global GDP in 2023.145 These FTAs include USMCA, the Comprehensive and

Progressive Agreement for Trans-Pacific Partnership (CPTPP), and an agreement with the EU

that is provisionally in force.146

One of the key issues facing the 119th Congress—with potentially large implications for U.S.Canada trade relations—is the scheduled 2026 “joint review” of USMCA. USMCA is scheduled

to terminate 16 years after its entry into force (July 1, 2036), unless all three USMCA parties

confirm that they wish to continue the agreement through a “joint review” process. The first joint

137 Data from the U.S. Census Bureau and Government of Canada, Statistics Canada, as presented by Trade Data

Monitor, accessed December 2024.

138 Data from the U.S. Census Bureau, accessed December 2024, and Government of Canada, Statistics Canada, as

presented by Trade Data Monitor, accessed December 2024.

139 Data from BEA, “Table 7. Foreign Direct Investment in the United States: Selected Items by Country of Foreign

Parent, 2020–2023,” July 23, 2024; and Government of Canada, Statistics Canada, “Foreign direct investment, 2023,”

April 29, 2024. For BEA data, FDI position on a historical-cost basis by country of foreign parent.

140 Ibid. and Government of Canada, Statistics Canada, “Foreign Direct Investment in Canada by Select Ultimate and

Immediate Investing Country, 2023,” modified April 29, 2024. FDI by stock by immediate investing country.

141 Jill Colvin and Rob Giles, “Trump Threatens to Impose Sweeping New Tariffs on Mexico, Canada and China on

First Day in Office,” Associated Press, November 26, 2024.

142 Based on various CRS conversations with Canadian stakeholders in September and October 2024. Also see, for

example, Edward Greenspon, Janice Gross Stein, and Drew Fagan, “Canada Needs to Have a Plan for the U.S., No

Matter Who Becomes President. That Starts with Making Us Matter More,” Globe and Mail, April 27, 2024.

143 Stephen Tapp and Trevor Tombe, What the Return of the “Tariff Man” Means for the Canadian and U.S.

Economies, Canadian Chamber of Commerce’s Business Data Lab, November 28, 2024; and Kate Gibson, “Trump

tariffs on Canada Imports Could Lead to Sharply Higher Gas Prices, Experts Warn,” CBS News, November 27, 2024.

144 See, for example, Patrick Leblond, “Canada Needs to Find New Ideas in Geopolitical and Economic Strategy to

Avoid Getting Squeezed,” Policy Options, Institute for Research on Public Policy, September 10, 2024.

145 Government of Canada, “Trade and Investment Agreements,” updated October 31, 2024; and CRS analysis of data

from the International Monetary Fund, World Economic Outlook Database, October 2024.

146 The United States does not currently have an FTA with the EU and withdrew from CPTPP’s predecessor, the TransPacific Partnership (TPP) in 2017 after negotiations were completed. For more on CPTPP, see CRS In Focus IF12078,

CPTPP: Overview and Issues for Congress.

Congressional Research Service

21

Canada: Background and U.S. Relations

review is scheduled to be held on the coming sixth anniversary of the agreement’s entry into

force, July 1, 2026.147 This is the first time such a joint review provision has been included in any

U.S. free trade agreement. Due to the lack of precedent, some observers have noted that there is

uncertainty about the scope and process related to the review.148 The Canadian government held

public consultations on USMCA from August 2024 to October 2024.149 The Office of the United

States Trade Representative (USTR) is also statutorily required to seek public comments, hold a

public hearing, and report to Congress ahead of the joint review.150

Congress has an oversight role in the joint review process and could potentially shape U.S.

priorities and approaches through hearings, letters, and other consultation mechanisms. Some

Members have lauded the U.S.-Canada economic partnership and highlighted the potential for

bilateral cooperation to develop more resilient supply chains (e.g., S.Res. 591/H.Res. 1053). At

the same time, some Members have expressed concerns about various trade issues with Canada.

Outlined below are a few key U.S.-Canada trade issues, including “Automotive Trade,” “Digital

Services,” “Canadian Dairy Tariff-Rate Quotas and Supply Management System,” “Softwood

Lumber,” and “Government Procurement and Federally Funded Infrastructure.” Congress may

consider the implications of these issues in relation to the USMCA joint review or in the context

of the broader U.S.-Canada relationship.

Automotive Trade

NAFTA was instrumental in shaping a highly integrated North American automotive industry. It

built upon automotive trade integration that had already been developed between the United

States and Canada, dating back to the Canada-United States Automotive Products Agreement

(Auto Pact), signed in 1965 and approved by P.L. 89-283, commonly known as the Automotive

Products Trade Act.

In 2023, the United States imported $63 billion in automotive goods from Canada and exported

$68.2 billion to Canada.151 In 2023, the United States supplied 41% of Canadian vehicle imports

by value, and Canada supplied 17% of U.S. vehicle imports by value.152 The Canadian auto

industry, which includes subsidiaries of U.S.-headquartered automakers, is highly reliant on the

U.S. auto market—in 2023, 94% of Canadian auto exports by value went to the United States.153

For this reason, some Canadian auto industry groups prioritize maintaining integration with the

U.S. economy and alignment with U.S. policies and regulations.154

Several key issues related to the North American auto industry such as USMCA automotive rules

of origin and automotive imports and investments from China are discussed below. The 119th

Congress has an oversight role over the implementation of USMCA and may monitor

147 Agreement between the United States of America, the United Mexican States, and Canada (USMCA), Article 34.7.

148 See, for example, Simon Lester, A New Chapter in Trade: Preparing for the Landmark Review of the USMCA, Rice

University’s Baker Institute for Public Policy, June 14, 2024.

149 Government of Canada, Global Affairs Canada, “Public consultations on Canada-United States-Mexico Agreement

commence,” August 21, 2024.

150 See CRS In Focus IF10997, U.S.-Mexico-Canada (USMCA) Trade Agreement.

151 BEA, “Table 1.5. U.S. International Trade in Goods and Services by Area and Country,” December 18, 2024.

152 Harmonized System (HS) code 8703. CRS analysis of data from the U.S. Census Bureau, and data from

Government of Canada, Statistics Canada, as presented by Trade Data Monitor, accessed December 2024.

153 HS code 8703. CRS analysis of data from Government of Canada, Statistics Canada, as presented by Trade Data

Monitor, accessed December 2024.

154 Canadian Vehicle Manufacturers’ Association, “CVMA Statement on Securing the Automotive Supply Chain,”

press release, September 25, 2023.

Congressional Research Service

22

Canada: Background and U.S. Relations

developments related to these issues—including through the USMCA joint review—and assess

their implications for the U.S. and North American automotive industry as well as broader U.S.Canada relations.

Rules of Origin

NAFTA established rules for duty-free automotive trade in North America (referred to as rules of

origin), and USMCA tightened these rules.155 The automotive rules of origin were an area of

contention among and within the United States, Canada, and Mexico during USMCA

negotiations. During the implementation phase, the three parties have disagreed over the

interpretation of the rules. Mexico and Canada challenged the U.S. interpretation of North

American content requirements related to the automotive rules of origin under USMCA’s Chapter

31 state-state dispute settlement mechanism. The United States argued for a stricter approach to

calculating North American content, particularly related to core parts (e.g., engines,

transmissions). Mexico and Canada argued for a more flexible interpretation that would help

North American producers meet the USMCA content requirements.156 On December 14, 2022, a

USMCA panel issued a report ruling in favor of Mexico and Canada’s position.157 The decision

cannot be appealed. As of December 2024, the three parties have not reached a resolution. Under

USMCA rules, Canada and Mexico could have begun suspending certain benefits to the United

States on January 28, 2023, 45 days after the parties received the final report, but they have not

done so to date.

The December 2022 USMCA panel decision has provoked mixed reactions from North American

stakeholders. Canadian officials and Mexican business groups praised the decision, whereas

USTR expressed disappointment, claiming the panel’s interpretation could negatively impact the

North American auto industry and U.S. jobs.158 Some U.S. stakeholders, such as labor groups,

expressed concerns that the USMCA panel ruling undermines efforts to boost the U.S. auto

industry and undercuts workers’ confidence in trade agreements.159 At the same time, some

automotive industry groups have criticized the Biden Administration for not complying with the

panel’s decision in favor of Canada and Mexico’s interpretation of the rules of origin, with one

group stating that this lack of resolution creates uncertainty as the automotive industry deals with

a “regulatory limbo.”160

Some automotive industry groups have noted that the USMCA rules of origin create additional

administrative burdens, and have called for more flexibility.161 At the same time, some labor

groups have called for tighter rules of origin on components related to EVs and autonomous

155 For more details, see CRS In Focus IF12082, USMCA: Automotive Rules of Origin.

156 Steven Chase, “USMCA Auto-Dispute Ruling Favours Canada, Mexico; Panel’s Decision Upholds Regional

Content Rules Negotiated in Pact That Succeeded NAFTA,” Globe and Mail, January 11, 2023.

157 The USMCA panel report is available at https://ustr.gov/sites/default/files/enforcement/FTA/USMCA%2031/

USMCAAutomotive%20ROO.pdf.

158 Government of Canada, Global Affairs Canada, “Statement by Minister Ng on Canada-United States-Mexico

Agreement Dispute on Rules of Origin for Automotive Goods,” January 11, 2023; and Alejandro Alegría, “Fallo sobre

Reglas de Origen Favorece Institucionalidad del T-MEC: IP,” La Jornada, January 11, 2023.

159 United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW), “UAW Statement on the

Car-Content Rule Announced by the USTR,” press release, January 12, 2023.

160 Autos Drive America, Inaction on USMCA Creates Uncertainty for North American Auto Industry, January 31,

2024.

161 USTR, Report to Congress on the Operation of the United States-Mexico-Canada Agreement with Respect to Trade

in Automotive Goods, July 1, 2024, pp. 13-14.

Congressional Research Service

23

Canada: Background and U.S. Relations

vehicles.162 Such labor groups have also called for increasing the 2.5% U.S. most-favored-nation

(MFN) tariff on passenger vehicles—which the United States applies to vehicles from non-FTA

countries—to encourage greater compliance with the USMCA rules of origin.163 Some observers

have noted, for example, that North American auto manufacturers may consider paying the 2.5%

tariff less costly than the investment required to bring their supply chains into compliance with

USMCA rules of origin.164

PRC Automotive Imports and Investments

As of September 27, 2024, China’s EV exports to the United States face an additional 100% tariff

under Title III of the Trade Act of 1974 (19 U.S.C. §§2411-2420), commonly referred to as

“Section 301.”165 The United States also implemented 25% tariffs on EV batteries and critical

minerals, with some tariffs going into effect in September 2024 and others scheduled to go into

effect in 2026.166 The Biden Administration cited “extensive subsidies and non-market practices

leading to substantial risks of overcapacity” from China and stated that it was implementing

tariffs to “protect American manufacturers from China’s unfair trade practices.”167

Some Members of Congress have noted an increase in China’s global vehicle exports and

expressed concerns that PRC firms may seek to circumvent the Section 301 tariffs on PRC

imports by establishing operations in North America.168 Some observers have noted that imports

to the United States from potential PRC operations in Canada or Mexico would be deemed

Canadian or Mexican goods and face MFN tariff rates, or be traded duty-free if they meet the

USMCA rules of origin).169 Some labor groups have argued for increasing U.S. MFN tariff rates

on vehicles and auto parts to raise the costs of Section 301 tariff circumvention and encourage

compliance with USMCA rules of origin; such groups have also commented that the USMCA

partners may need to consider how to address imports of PRC automakers’ vehicles exported

from third countries (not coming from China).170

162 UAW, “UAW’s Public Comment on Operation of the United States-Mexico-Canada Agreement with Respect to

Trade in Automotive Goods,” January 17, 2024, https://www.regulations.gov/comment/USTR-2023-0013-0013, and

Unifor, “A Better Deal for Canada: Fixing the Flaws in North American Trade, Submission to Government of Canada

Consultations on the Operation of the Canada-United States-Mexico Agreement (CUSMA),” October 31, 2024.

163 See definition of most-favored nation (MFN) tariff at https://www.wto.org/english/thewto_e/glossary_e/

mfn_tariff_e.htm.

164 See, for example, William Alan Reinsch, USMCA Automotive Rules of Origin: Economic impacts, Competitiveness

Effects, and Relevance, Center for Strategic & International Studies, November 4, 2022. The MFN tariff for certain

pickup trucks is 25%.

165 For more on the Section 301 China tariffs, see USTR, “China Section 301-Tariff Actions and Exclusion Process,”

https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions. The Section 301 tariff on EVs is in

addition to the 2.5% MFN tariff. USTR, “Notice of Modification: China’s Acts, Policies and Practices Related to

Technology Transfer, Intellectual Property and Innovation,” 89 Federal Register 76581, September 18, 2024.

166 Ibid.

167 White House, “FACT SHEET: President Biden Takes Action to Protect American Workers and Businesses from

China’s Unfair Trade Practices,” May 14, 2024.

168 See, for example, Sen. Marco Rubio, “Rubio Introduces Bills to Prevent China from Flooding U.S. Auto Markets,”

press release, March 5, 2024; and Letter from Rep. Mike Gallagher and Rep. Raja Krishnamoorthi et al. to USTR

Katherine Tai, November 7, 2023.

169 USTR, Report to Congress on the Operation of the United States-Mexico-Canada Agreement with Respect to Trade

in Automotive Goods, July 1, 2024, pp. 25-26, and Alliance for American Manufacturing, On a Collision Course:

China’s Existential Threat to America’s Auto Industry and Its Route Through Mexico, February 20, 2024.

170 USTR, Report to Congress on the Operation of the United States-Mexico-Canada Agreement with Respect to Trade

in Automotive Goods, July 1, 2024, pp. 25-26.

Congressional Research Service

24

Canada: Background and U.S. Relations

Canadian Members of Parliament and other Canadian stakeholders have expressed concerns

about being viewed as a “backdoor” for PRC imports and have urged alignment with U.S.

policies related to tariffs and bans of imported goods involving forced labor.171 In 2023, Canada

imported $2 billion worth of vehicles—mostly EVs—from China; this represented a 317%

increase from 2022 ($473 million) and a 1,775% increase from 2018 ($105 million).172

In August 2024, Canada announced its intention to impose tariffs on PRC EV imports. In

September 2024, in what some observers have described as retaliation for Canada’s actions,

China’s Ministry of Commerce announced that it would initiate an anti-dumping investigation

into imports of Canadian canola seed.173 On October 1, 2024, Canada imposed an additional

100% tariff on EV imports from China (on top of Canada’s 6.1% MFN tariff on passenger

vehicles) under Section 53 of its Customs Tariff.174 From September 10 to October 10, 2024, the

Canadian government also held a separate consultation on potential tariffs in “critical

manufacturing sector” items, such as EV batteries, semiconductor-related goods, solar products,

and critical minerals.175 As of October 1, 2024, federal incentives Canada extended for zeroemission vehicles were limited to vehicles manufactured in a country with which it has an FTA.176

Some stakeholders, including Biden Administration officials, promote deliberating a coordinated

North American approach to PRC imports and investments through the USMCA joint review.177

Critical Minerals and EV Battery Supply Chains

Critical minerals are used in goods related to defense, clean energy (e.g., EVs), and other strategic

sectors. Some analysts have expressed concerns about a high risk for potential disruptions to

critical mineral supply chains because current critical mineral mining and processing is

concentrated in a small number of countries, notably China.178 Such analysts have commented

that this challenge could become more acute as demand for critical minerals grows due to the

global transition toward clean technologies.

Canada has reserves and production of various critical minerals and materials—including cobalt,

copper, graphite, lithium, and nickel.179 According to Canada’s critical minerals strategy

document, the country is seeking to increase production of critical minerals and to develop

commercial production of reserves, such as rare earth elements.180 The strategy also discusses

Canada’s goals to develop other supply chain capabilities, such as processing and recycling of

171 See, for example, Parliament of Canada, House of Commons of Canada, Standing Committee on International

Trade, 2026 CUSMA Review, hearing, 44th Parl., 1st sess., May 30, 2024.

172 HS code 8703. CRS analysis of data from Government of Canada, Statistics Canada, as presented by Trade Data

Monitor, accessed December 2024.

173 Canola Council of Canada, “Trade with China,” https://www.canolacouncil.org/china-update/. According to the

Canola Council of Canada, China is the second-largest export market for Canadian canola.

174 “China Surtax Order (2024): SOR/2024-187,” Canada Gazette, Part II, vol. 158, no. 21, SOR/2024-187, September

20, 2024.

175 Government of Canada, Department of Finance Canada, “Consultations on Potential Surtaxes in Response to Unfair

Chinese Trade Practices in Critical Manufacturing Sectors,” updated September 10, 2024.

176 Government of Canada, Transport Canada, “Incentives for Zero-Emission Vehicles (iZEV),” updated July 5, 2024.

177 Tracy Alloway and Joe Weisenthal, “US Trade Representative Tai Explains the New Way of Trading with China,”

Bloomberg, September 9, 2024; and Margaret Spiegelman, “Tai: Some ‘Discomfort’ Will Be Key to Successful

USMCA Review,” Inside U.S. Trade, March 6, 2024.

178 International Energy Agency, Global Critical Minerals Outlook 2024, May 2024.

179 U.S. Geological Survey, “Mineral Commodity Summaries 2024,” https://doi.org/10.3133/mcs2024.

180 Government of Canada, “The Canadian Critical Minerals Strategy,” December 2022.

Congressional Research Service

25

Canada: Background and U.S. Relations

critical minerals. Individual provinces have also released critical minerals strategies.181 The

Canadian government notes some challenges to further mining development, such as complex

regulatory and permitting processes, and insufficient investments in land-based, transportation,

and energy infrastructure needed to access reserves in remote areas.182

In October 2022, Canada updated its guidelines related to foreign investments from state-owned

enterprises in critical minerals sectors; Canadian officials stated that “significant transactions by

foreign state-owned enterprises in Canada’s critical minerals sectors will only be approved as of

likely net benefit on an exceptional basis.”183 This action occurred amidst broader concerns about

PRC investments in strategic sectors. For example, Congress passed P.L. 117-169, which included

revisions to the $7,500 U.S. EV tax credit (discussed below), such as prohibiting EV battery

components and critical minerals from “foreign entities of concern,” (e.g., PRC state-owned

enterprises). In November 2022, the Canadian government ordered the divestiture of several

investments in Canadian critical mineral companies by PRC and Hong Kong investors.184 Some

observers have noted that some Canadian mining companies are struggling to attract non-PRC

capital and may be moving overseas to avoid Canadian investment regulations.185

Some U.S. observers have called for increased cooperation between the United States and allies

such as Canada on mining regulations and investments.186 The United States and Canada are

engaged in cooperative efforts related to critical minerals through several bilateral and

multilateral fora. Canada is a member of the U.S.-initiated Minerals Security Partnership, which

brings various countries and private sector stakeholders together to discuss critical minerals

project investments and standards.187 Under the Trump Administration, Canada and the United

States also launched a bilateral Joint Action Plan on Critical Minerals Collaboration to increase

information and data sharing, promote private sector engagement, coordinate on research and

development, and collaborate in multilateral fora.188

Congress has taken some actions to deepen U.S.-Canadian cooperation on critical minerals.

During the 117th Congress, for example, Congress enacted legislation (P.L. 117-169, commonly

referred to as the Inflation Reduction Act (IRA)), which addressed Canadian concerns about

proposed U.S. content and assembly requirements for EV tax credits.189 The law included North

American assembly requirements for vehicles and batteries, rather than U.S.-specific

181 See, for example, the Government of Quebec, “Québec Plan for the Development of Critical and Strategic

Minerals,” https://www.quebec.ca/en/government/policies-orientations/quebec-plan-development-critical-strategicminerals, updated June 3, 2024.

182 Government of Canada, “The Canadian Critical Minerals Strategy,” December 2022.

183 Government of Canada, “Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals

under the Investment Canada Act,” updated June 26, 2024; and Innovation, Science and Economic Development

Canada, “Canada Strengthens Guidelines to Protect Critical Minerals Sectors from Foreign State-Owned Enterprises,”

October 28, 2022.

184 Government of Canada, Innovation, Science and Economic Development Canada, “Government of Canada Orders

the Divestiture of Investments by Foreign Companies in Canadian Critical Minerals Companies,” November 2, 2022.

185 See, for example, Niall McGee, “Navigating ‘The Valley of Death’: Why Canada’s Emerging Critical Minerals

Miners Are Struggling to Survive and What Can Be Done About It,” Globe and Mail, November 22, 2024.

186 Joseph Bouchard, “Canadian Miners Need Capital – but Only China Is Stepping Up,” The Diplomat, March 25,

2024.

187 U.S. Department of State, “Minerals Security Partnership,” June 14, 2022.

188 White House, U.S.-Canada/Canada-U.S. Supply Chains Progress Report, June 2022; and Government of Canada,

Natural Resources Canada, “Canada and U.S. Finalize Joint Action Plan on Critical Minerals Collaboration,” press

release, January 9, 2020.

189 Alexander Panetta, “Trudeau Arrives in U.S. with Last-Minute Warning for Democrats About Electric Vehicle Tax

Credit,” CBC News, November 17, 2021.

Congressional Research Service

26

Canada: Background and U.S. Relations

requirements, which Canadian officials publicly asserted would have had negative economic

impacts on Canada and the integrated North American auto sector.190 The EV tax credit (26

U.S.C. §30D) also requires that a certain percentage of critical minerals in an EV battery be

sourced from the United States (or in an FTA partner country, such as Canada) or recycled in

North America.191 U.S. policymakers crafted such IRA provisions in part reflecting concerns over

U.S. dependence on PRC supply chains.192

The Canadian federal government and provincial governments have been actively supporting EV

supply chain investments. According to analysis by the Office of the Parliamentary Budget

Officer, from October 8, 2020 to April 25, 2024, a total of C$46.1 billion ($33.9 billion) in

investments across the EV supply chain were announced, with up to C$52.5 billion

($38.6 billion) in estimated federal and provincial government support.193

The U.S. and Canadian governments have also co-invested in some critical minerals projects. In

May 2024, for example, the U.S. Department of Defense announced $14.7 million in funding

under Title III of the Defense Production Act (50 U.S.C. §§4501 et seq.) to two Canadian

companies operating in Canada to “build resilience” in cobalt and graphite supply chains.194 The

Canadian government awarded the companies $9.2 million in additional funding.195 The U.S. and

Canadian governments have also announced co-investments related to the production of cobalt

sulfate and active materials for lithium iron phosphate cathodes as well as tungsten mining.196

Some observers have commented that the USMCA joint review may be an opportunity to further

discussions about North American collaboration on critical minerals and clean energy supply

chains.197 As noted above, Congress has an oversight role in the joint review process and may

consider whether to prioritize critical minerals supply chain collaboration as part of the review.

Digital Services

The United States is home to several of the world’s largest digital services providers. The

Canadian government has passed several bills that tax, mandate payments from, and/or regulate

such digital services companies. As described below, some Members of Congress and business

groups have argued that these laws disadvantage and/or target U.S. companies and could

190 See, for example, statements by Mary Ng, then-Canadian Minister of International Trade, Export Promotion, Small

Business and Economic Development, as quoted in Steven Chase, “Threat to Canadian Electric Vehicle Industry

Dissipates with U.S. Senate Deal,” Globe and Mail, July 28, 2022.

191 For more information, see CRS In Focus IF12517, U.S.-Japan Critical Minerals Agreement; and CRS In Focus

IF12600, Clean Vehicle Tax Credits.

192 See, for example, Senate Majority Leader Chuck Schumer, “Summary of the Energy Security and Climate Change

Investments in the Inflation Reduction Act of 2022,” July 27, 2022; and Morgan D. Bazilian and Gregory Brew, “The

Inflation Reduction Act Is the Start of Reclaiming Critical Mineral Chains,” Foreign Policy, September 16, 2022.

193 Jill Giswold, “Tallying Government Support for EV Investment in Canada,” Government of Canada, Office of the

Parliamentary Budget Officer, June 18, 2024.

194 U.S. Department of Defense (DOD), “Department of Defense Awards $14.7 Million to Enhance North American

Cobalt and Graphite Supply Chain,” press release, May 16, 2024. For more information on the Defense Production Act,

see CRS Report R43767, The Defense Production Act of 1950: History, Authorities, and Considerations for Congress.

195 Ibid.

196 DOD, “Department of Defense Awards $20 Million to Establish Sustainable Cobalt Sulfate Production for Large

Capacity Battery Supply Chain,” press release, August 19, 2024; DOD, “Department of Defense Awards $12.9 Million

to Increase Production of Active Materials for Lithium Iron Phosphate Cathodes,” press release, September 26, 2024;

and DOD, “Department of Defense Makes Investment to Strengthen the Tungsten Supply Chain,” December 13, 2024.

197 See, for example, C.J. Mahoney and Peter Harrell, Toward a Cleaner, Smarter USMCA, Carnegie Endowment for

International Peace, December 17, 2024.

Congressional Research Service

27

Canada: Background and U.S. Relations

potentially violate USMCA rules. Conservative Leader Poilievre has stated that he would repeal

some of these measures if Conservatives take power in the next federal election.198

Digital Services Tax

In June 2024, the Canadian government enacted Bill C-59, which included a 3% digital services

tax (DST)—retroactive to January 1, 2024—on certain revenue of large digital services providers.

Digital services providers are required to register with the Canadian Revenue Agency by January

31, 2025, and to make their first tax payments by June 30, 2025.199

The Canadian government first proposed draft DST legislation (the Digital Services Tax Act) in

February 2022. In background materials about the act, the Department of Finance Canada

(Finance Canada) stated that the government had a “strong preference for a multilateral approach

to addressing the tax challenges arising from today’s digital economy,” and that the DST was

proposed as an “interim measure, to apply until an acceptable multilateral approach comes into

effect.”200

In October 2021, members of the Organisation for Economic Co-operation and

Development/Group of 20 (OECD/G20) Inclusive Framework, including the United States and

Canada, agreed on a plan to update the global tax system to address profit shifting and develop an

international digital tax framework.201 Finance Canada noted that the government would not

impose a DST before January 1, 2024, and would impose it only if the digital services portion of

the international tax reform plan agreed to by the OECD/G20 Inclusive Framework had not come

into force.202 In July 2023, 138 out of 145 Framework members agreed to hold off on imposing

DSTs until at least 2025 to allow for additional negotiations; Canada objected, stating that it

would not support a DST moratorium without a “firm and binding” timeline for Framework

implementation.203

In its 2024 report on foreign trade barriers, USTR expressed concerns that the DST would create

“the possibility of significant retroactive tax liabilities with immediate consequences for U.S.

companies.”204 In August 2024, USTR requested consultations with Canada under USMCA to

discuss the DST and said the United States would continue its efforts to reach a multilateral

agreement through the OECD/G20 framework.205 If the United States and Canada are unable to

198 Marie Woolf, “Poilievre Pledges to Repeal Online Streaming Bill, Says It Gives Power to ‘Woke’ Agency,” Globe

and Mail, March 9, 2023; and Richard Raycraft, “New Law Requiring Facebook, Google to Pay for News Draws

Praise, Criticism,” CBC News, June 23, 2023.

199 Parliament of Canada, Bill C-59, 44th Parl., 1st sess., https://www.parl.ca/legisinfo/en/bill/44-1/c-59. For more

details, see CRS Insight IN12399, Canada’s Digital Services Tax Act: Issues Facing Congress, by Kyla H. Kitamura

and Danielle M. Trachtenberg.

200 Government of Canada, Department of Finance Canada, “Digital Services Tax Act,” February 14, 2022.

201 For more on the OECD/G20 Framework, see CRS Report R47988, The OECD/G20 Pillar 1 and Digital Services

Taxes: A Comparison.

202 Government of Canada, Department of Finance Canada, “Digital Services Tax Act,” February 14, 2022.

203 Organisation for Economic Co-operation and Development, “138 Countries and Jurisdictions Agree Historic

Milestone to Implement Global Tax Deal,” press release, July 12, 2023; and Deputy Prime Minister of Canada Chrystia

Freeland, “Statement by the Deputy Prime Minister on International Tax Reform Negotiations,” press release, July 12,

2023.

204 USTR, 2024 National Trade Estimate Report on Foreign Trade Barriers, March 29, 2024, p. 46.

205 USTR, “United States Requests USMCA Dispute Settlement Consultations on Canada’s Digital Services Tax,”

press release, August 30, 2024.

Congressional Research Service

28

Canada: Background and U.S. Relations

reach a solution through consultations, the United States can request a USMCA dispute settlement

panel.

In the past, USTR has stated that it would “examine all options” for addressing a potential

Canadian DST, including mechanisms under existing trade agreements and domestic statutes.206

Prior to the OECD/G20 Framework agreement, USTR initiated Section 301 investigations into

various countries’ DSTs.207 USTR found DSTs in several countries to be discriminatory and

announced it would impose retaliatory tariffs. Negotiations followed the announcement, during

which these tariffs were suspended prior to implementation. After the talks concluded, several

countries agreed to apply U.S. companies’ DST liabilities toward future taxes accrued under the

OECD/G20 agreement; in exchange, the United States agreed to terminate suspended Section 301

duties.208 The agreements with most countries were extended through June 30, 2024.209 To date,

there have been no updates or extensions of the DST agreements.

In hearings and letters about Canada’s DST, some Members of Congress have urged USTR to

“continue reviewing all available options,” including a Section 301 investigation.210 Some

Canadian industry groups have expressed concerns about the DST’s potential negative impacts on

U.S.-Canada trade relations, particularly ahead of the USMCA joint review.211 Canada’s Office of

the Parliamentary Budget Officer estimated that a DST would increase Canadian government

revenues by C$7.2 billion (about $5.3 billion) from FY2023 through FY2027.212

Online Streaming Act

The Canadian Radio-Television and Telecommunications Commission (CRTC) regulates

Canadian content requirements for Canadian radio and television. The CRTC formally established

its first Canadian content requirements in 1971 (for AM radio) amid concerns that Canadian

culture would be dominated by cultural imports, particularly from the United States.213 The CRTC

requires television and radio companies operating in Canada to fund and broadcast a certain

percentage of Canadian content. The Online Streaming Act (Bill C-11), which became law in

April 2023, amended Canada’s Broadcasting Act to give the CRTC the power to regulate entities

206 USTR, “USTR Opposes Canada’s Digital Services Tax Act Proposal,” press release, February 22, 2022.

207 For more details, see CRS In Focus IF11564, Section 301 Investigations: Foreign Digital Services Taxes (DSTs).

208 USTR, “USTR Welcomes Agreement with Austria, France, Italy, Spain, and the United Kingdom on Digital

Services Taxes,” press release, October 21, 2021; and USTR, “USTR Welcomes Agreement with India on Digital

Services Taxes,” press release, November 24, 2021.

209 USTR, “The United States, Austria, France, Italy, Spain, and the United Kingdom Announce Extension of

Agreement on the Transition from Existing Digital Services Taxes to New Multilateral Solution Agreed by the

G20/OECD Inclusive Framework,” press release, February 15, 2024.

210 See, for example, Letter from Rep. Dan Kildee and Rep. Bill Huizenga to Treasury Secretary Janet Yellen,

Secretary of State Antony Blinken, USTR Katherine Tai, and National Economic Council Director Lael Brainard,

October 1, 2024; U.S. Congress, House Ways and Means Committee, Trade Subcommittee, Trade Subcommittee

Hearing on Protecting American Innovation by Establishing and Enforcing Strong Digital Trade Rules, 118th Cong.,

2nd sess., September 20, 2024; and Brett Fortnam, “Ways & Means Members Take Aim at Foreign Digital Trade

Policies,” Inside U.S. Trade, September 20, 2024.

211 Business Council of Canada, “Unilateral Digital Service Tax Risks Retaliatory Action from the United States,” press

release, July 3, 2024; and Canadian Chamber of Commerce, “Canadian Chamber Statement on the Imminent

Implementation of the Digital Services Tax (DST),” press release, July 4, 2024.

212 Diarra Sourang, Digital Services Tax, Government of Canada, Office of the Parliamentary Budget Officer, October

17, 2023.

213 Eric Spalding, “Turning Point: The Origins of Canadian Content Requirements for Commercial Radio,” Journal of

Canadian Studies, vol. 50, no. 3 (August 22, 2017).

Congressional Research Service

29

Canada: Background and U.S. Relations

that broadcast through social media (e.g., Meta) or online streaming services (e.g., Netflix,

YouTube), including enforcing rules related to Canadian content.214

The Canadian government argued that the growing importance of streaming platforms

necessitated the Online Streaming Act and that it would increase funding for the production of

Canadian content.215 Some observers have claimed that the definition of Canadian content is

overly narrow and argue that the current definition must be broadened and modernized.216 From

November 2024 to January 2025, the CRTC is holding public consultations on the definition of

Canadian content for television and online streaming services.217

In June 2024, the CRTC released proposed regulations related to the Online Streaming Act and

announced that it will require online streaming services with annual revenues of C$25 million

($18.4 million) or more to contribute toward or directly fund Canadian content.218 The CRTC

issued final regulations on August 29, 2024.219 The funding requirement is in place for the 20242025 broadcast year, with the first substantive contributions due by August 31, 2025.220

Several U.S.-based companies have challenged the act in Canadian courts. Canadian officials

maintain that the Online Streaming Act is consistent with Canada’s international trade

obligations.221 U.S. industry groups have criticized the fund contribution requirement as

discriminatory toward foreign firms (who cannot draw upon the fund), while some Canadian

observers note that funding requirements apply to companies in Canada regardless of

nationality.222 Some Members of Congress posit that Canada will apply Canadian content quotas

to online streaming services under the Online Streaming Act, which such Members argue would

discriminate against U.S. content and negatively impact consumers.223 Such Members also argue

that rules that condition access to the Canadian market on “making financial contributions into

certain government-linked funds intended for the [Canadian] domestic music industry” may

violate USMCA rules related to digital trade.224

Under USMCA, Canada is allowed to adopt or maintain measures related to a “cultural industry”

that would be otherwise inconsistent under the agreement. The other Parties are allowed to take

“a measure of equivalent commercial effect” in response; disputes related to the response must be

214 Parliament of Canada, Bill C-11, 44th Parl., 1st sess., https://www.parl.ca/LegisInfo/en/bill/44-1/c-11.

215 Government of Canada, Canadian Heritage, “Questions & Answers on the Online Streaming Act,” updated March

21, 2023.

216 Marie Woolf, “Streamers May Be Required to Feature More Cancon. But What Should Qualify as Canadian?,” The

Canadian Press, April 11, 2022.

217 Government of Canada, Canadian Radio-Television and Telecommunications Commission (CRTC), “CRTC

Consults on Definition of Canadian Content and Flexible Approach for Radio,” November 15, 2024.

218 CRTC, “Broadcasting Regulatory Policy CRTC 2024-121, The Path Forward – Supporting Canadian and

Indigenous Content Through Base Contributions,” June 4, 2024.

219 CRTC, “Broadcasting Regulatory Policy CRTC 2024-121-1 and Broadcasting Order CRTC 2024-194, The Path

Forward – Supporting Canadian and Indigenous Content Through Base Contributions – Finalization of Conditions of

Service,” August 29, 2024.

220 Ibid.

221 Anja Karadeglija, “Online News, Streaming Bills in Line with Trade Obligations, Ng Says After U.S. Criticism,”

National Post, December 22, 2022.

222 Computer & Communications Industry Association, “CCIA Responds to Regulatory Requirement to Fund Canadian

Content,” press release, June 4, 2024 and Oliver Ward, “U.S. Streaming Giants to Face Five Percent Levy on Canadian

Sales, Says Regulator,” Inside U.S. Trade, June 4, 2024.

223 See, for example, Letter from Rep. Lloyd Smucker and Rep. Linda Sánchez, to USTR Katherine Tai, May 16, 2024.

224 Ibid.

Congressional Research Service

30

Canada: Background and U.S. Relations

settled under USMCA.225 In its 2024 report on foreign trade barriers, USTR mentioned the Online

Streaming Act and noted that the United States will “closely monitor the implementation of the

Act and any USMCA implications.”226 Some Canadian observers have expressed concerns that

the Online Streaming Act could negatively impact U.S.-Canada relations ahead of the USMCA

joint review and could spark U.S. retaliation.227

Online News Act

The Online News Act (Bill C-18)—which became law in June 2023 and went into effect on

December 19, 2023—allows Canadian news outlets to collectively bargain with digital platforms

(e.g., Google, Meta) regarding the use of their news content.228 The act also establishes a

mandatory arbitration framework in the event that digital platforms and news outlets cannot reach

an agreement. The Canadian government states that the act will ensure that “dominant platforms

compensate news businesses when their content is made available on their services,” noting that

news outlets have seen declining advertising revenue as more Canadians read news online.229 As

additional context for the act, the Canadian government noted news outlets’ “vital role in

maintaining a healthy democracy.”230 The Canadian government published implementing

regulations for the act on December 15, 2023.231

Some U.S. digital platforms have pushed back against the Online News Act, which one U.S.

company claimed created a “flawed and unfair regulatory environment.” Such platforms have

responded to the act by ending the availability of news content through their platforms in

Canada.232 Other U.S. digital platforms have engaged with the Canadian government to discuss

their concerns, negotiated annual payouts to Canadian news outlets, and requested exemptions

from the mandatory arbitration framework. After a public consultation process, the CRTC granted

its first exemption to Google under the Online News Act in October 2024.233

Canadian officials claim that the Online News Act is consistent with Canada’s international trade

obligations.234 Some Members of Congress introduced legislation during the 118th Congress (e.g.,

S. 1094) similar to the Online News Act. Other Members have expressed concerns that the Online

News Act may unfairly target U.S. companies and violate USMCA.235

225 Agreement between the United States of America, the United Mexican States, and Canada (USMCA), Article 32.6.

226 USTR, 2024 National Trade Estimate Report on Foreign Trade Barriers, March 29, 2024, p. 46.

227 Kyle Duggan, “Canada’s Digital Policies Are an Easy Target for Next White House, Trade Expert Warns,” Politico

Pro, October 9, 2024.

228 Parliament of Canada, Bill C-18, 44th Parl., 1st sess., https://www.parl.ca/legisinfo/en/bill/44-1/c-18.

229 Government of Canada, Canadian Heritage, “The Online News Act,” updated April 15, 2024.

230 Ibid.

231 “Online News Act Application and Exemption Regulations,” Canada Gazette, Part II, vol. 158, no. 1, SOR/2023276, December 15, 2023.

232

Meta, “Meta’s Position on Canada’s Online News Act,” May 8, 2023; Meta, “News Regulations,” updated

September 3, 2024.

233 Google submitted an exemption request after agreeing to pay news outlets C$100 million ($73.5 million) annually,

to be distributed by the Canadian Journalism Collective-Collectif Canadien de Journalisme. Per the agreement, Google

is to pay its contribution within 60 days of the CRTC’s exemption order decision. Google, “How We’re Moving

Forward with the Canadian News Ecosystem,” June 7, 2024; and CRTC, “Online News Decision CRTC 2024-262,

Exemption Order from the Online News Act Granted to Google,” October 28, 2024.

234 Anja Karadeglija, “Online News, Streaming Bills in Line with Trade Obligations, Ng Says After U.S. Criticism,”

National Post, December 22, 2022.

235 See, for example, Letter from Sen. Ron Wyden, chairman, Committee on Finance, and Sen. Michael Crapo,

Ranking Member, Committee on Finance, to USTR Katherine Tai, January 26, 2023.

Congressional Research Service

31

Canada: Background and U.S. Relations

Canadian Dairy Tariff-Rate Quotas and Supply Management System

Under USMCA, Canada committed to provide greater access for U.S. dairy exports through 14

U.S.-specific tariff-rate quotas (TRQs), which allow specified quantities to be imported into

Canada at preferential duty rates.236 Canada supports its dairy, poultry, and egg sectors by limiting

production, setting prices, and restricting imports (“supply management”).237 U.S. stakeholders,

including some Members of Congress, have argued that Canada is not providing the U.S. dairy

industry with “fair” market access, in violation of its USMCA commitments.238

USTR has challenged Canada’s dairy TRQs twice under USMCA’s Chapter 31 state-state dispute

settlement mechanism. USTR sought its first consultation regarding Canada’s dairy TRQs in

December 2020. In December 2021, a USMCA dispute settlement panel found Canada’s practice

of reserving TRQ pools exclusively for the use of domestic processors and further processors to

be inconsistent with Canada’s USMCA commitments.239 The panel did not make a ruling

regarding other issues raised by the United States. USTR requested a second USMCA panel after

contending that Canadian revisions to the dairy TRQ system in response to the 2021 USMCA

panel ruling remained inconsistent with Canada’s USMCA obligations.240 In November 2023, a

USMCA panel ruled in favor of Canada.241 U.S. officials and some Members of Congress

expressed disappointment in the decision.242 Some Canadian officials have stated that the

USMCA panel reports “expressly [recognize] the legitimacy of Canada’s supply management

system,” and that Canada will “continue to preserve and defend Canada’s supply management

system.”243

Some U.S. dairy groups and Members of Congress have called on USTR to “leverage all

available tools” during the 2026 USMCA review to address U.S. concerns about access to the

Canadian dairy market.244 At the same time, other Members have called on USTR to pursue new

U.S. dairy market access opportunities elsewhere.245

236 For more information on United States-Mexico-Canada Agreement (USMCA) dairy provisions, see CRS In Focus

IF11149, Dairy Provisions in USMCA.

237 Khamla Heminthavong, Canada’s Supply Management System, Parliament of Canada, Library of Parliament,

November 30, 2018.

238 See, for example, Letter from Rep. Mike Bost and Rep. Jim Costa et al. to USTR Katherine Tai and Agriculture

Secretary Tom Vilsack, December 14, 2023.

239 Final Panel Report on Canada-United States-Mexico Agreement, Arbitral Panel Established Pursuant to Article 31,

Canada-Dairy TRQ Allocation Measures (CDA-USA-2021-31-010), December 20, 2021.

240 USTR, “United States Establishes Second USMCA Dispute Panel on Canadian Dairy Tariff-Rate Quota Policies,”

press release, January 31, 2023.

241 See Final Report on Agreement between the United States of America, the United Mexican States, and Canada;

Panel Established Pursuant to Article 31.6; Canada-Dairy Tariff-rate Quota Allocation Measures 2023 (CDA-USA2023-31-01), November 10, 2023.

242 USTR, “WHAT THEY ARE SAYING: USMCA Dairy Ruling,” press release, November 27, 2023.

243 Government of Canada, Global Affairs Canada, “Minister Ng and Minister Bibeau Welcome Canada-United StatesMexico Agreement Dispute Settlement Panel Report on Dairy Tariff Rate Quotas,” press release, January 4, 2022; and

Global Affairs Canada, “Canada Welcomes CUSMA Dispute Settlement Panel Findings on Dairy Tariff Rate Quotas,”

press release, November 24, 2023.

244 Comments to USTR from the U.S. Dairy Export Council and National Milk Producers Federation, Comments

Regarding Foreign Trade Barriers to U.S. Exports for 2024 Reporting, October 17, 2024; and Letter from Rep. Mike

Bost and Rep. Jim Costa et al. to USTR Katherine Tai and Agriculture Secretary Tom Vilsack, December 14, 2023.

245 Letter from Rep. Derrick Van Orden et al. to USTR Katherine Tai and Agriculture Secretary Thomas Vilsack,

December 7, 2023.

Congressional Research Service

32

Canada: Background and U.S. Relations

The Canadian Parliament is considering a bill that would prevent Canadian trade negotiators from

making concessions related to Canada’s supply management system (Bill C-282).246 Supporters

of Bill C-282 and the supply management system have criticized market access concessions in

recent Canadian trade agreements, and argue that Canada’s supply management system provides

price stability for Canadian producers and preserves Canada’s food security.247 Critics of the bill

argue that an inability to make concessions would constrain Canada’s negotiating position and

potentially antagonize the United States ahead of the USMCA review.248 Some observers criticize

the supply management system overall as protectionist and regressive, leading to high prices for

Canadian consumers.249

The Canadian Senate passed an amendment to Bill C-282; the amendment states that Bill C-282

would not apply to existing agreements, ongoing trade negotiations, or the renegotiation of

existing agreements.250 Members may consider how, if passed, Bill C-282 might impact potential

future discussions on U.S. access to the Canadian dairy market.

Congress may also consider whether concerns about access to the Canadian dairy market should

be raised during the USMCA joint review.

Softwood Lumber

Trade in softwood lumber—primarily used in residential construction, remodeling, and repair—

historically has been one of the most controversial and enduring disputes in the U.S.-Canada trade

relationship.251 Canada has filed legal challenges against these duties under NAFTA, USMCA,

the World Trade Organization (WTO), and the Court of International Trade. Until October 2015,

the 2006 Softwood Lumber Agreement governed U.S.-Canada softwood lumber trade. Since the

agreement’s expiration, the United States has imposed antidumping (AD) and countervailing

duties (CVD) on imports of Canadian softwood lumber. Currently, there are no formal

negotiations regarding a new softwood lumber agreement. Although U.S. and Canadian officials

have expressed interest in reaching a new agreement, each side asserts that the other is unwilling

to negotiate.252

246 Parliament of Canada, Bill C-282, 44th Parl., 1st sess., https://www.parl.ca/legisinfo/en/bill/44-1/c-282.

247 See, for example, a 2024 joint editorial by several Canadian dairy, poultry, and egg associations, Chicken Farmers

of Canada, “Don’t Be Fooled by Flashy Headlines. Supply Management Delivers on Food Security,”

https://www.chickenfarmers.ca/media-room/dont-be-fooled-by-flashy-headlines-supply-management-delivers-on-foodsecurity/; Canadian Federation of Agriculture, “CFA Supports Bill C-282,” press release, February 8, 2023; and

Canadian Sen. Amina Gerba, “Bill C-282 Will Protect Canada’s Supply Management Policy: Senator Gerba,” October

17, 2023.

248 See, for example, Canadian Agri-Food Trade Alliance, “Canadian Agri-Food Producers Launch Campaign Warning

of Bill C-282’s Threat to Trade,” press release, October 30, 2024; Joel Dryden, “Alberta Government ‘Deeply

Concerned’ with Bloc Québécois Supply Management Bill,” CBC News, October 17, 2024; and Janyce McGregor,

“Senators Amend Bloc Québécois Supply Management Bill, Putting It on Path Back to Commons,” CBC News,

November 7, 2024.

249 See, for example, Sylvain Charlebois, “CHARLEBOIS: Here’s Why Bill C-282 Is an Awful Idea,” Toronto Sun,

February 11, 2024; and Jake Fuss and Alex Whalen, “OPINION: Canada Could Lower Grocery Bills by Scrapping

Supply Management,” Toronto Sun, June 25, 2024.

250 Parliament of Canada, Senate of Canada, Standing Committee on Foreign Affairs and International Trade, Fifteenth

Report: Bill C-282, An Act to Amend the Department of Foreign Affairs, Trade and Development Act (supply

management), with amendment and observations, November 7, 2024.

251 For additional background on the history of U.S.-Canada softwood lumber disputes, see CRS Report R42789,

Softwood Lumber Imports from Canada: Current Issues.

252 Reuters, “U.S. Open to New Lumber Talks with Canada, USTR Tai Says,” June 22, 2022; and Parliament of

(continued...)

Congressional Research Service

33

Canada: Background and U.S. Relations

The dispute over softwood lumber revolves around different pricing policies and forest

management structures in the two countries. In Canada, about 94% of forests are crown lands,

owned and administered by the federal and provincial governments; in the United States, about

58% of forests are privately held, with prices set by the market.253 The Canadian provinces

typically allocate timber to producers under tenure agreements, generally long-term (5-25 years),

and charge a stumpage fee—a per-unit-of-volume fee charged for the right to harvest the trees.

U.S. producers maintain that since the stumpage fee is not determined by market forces, it acts as

a subsidy to promote the Canadian industry, sectoral employment, or regional development.

Canada denies that its timber management practices constitute a subsidy and maintains that it has

a comparative advantage in timber and a more efficient industry than the United States.254

Under the 2006 Softwood Lumber Agreement, which expired in October 2015, the United States

agreed to allow unlimited imports of Canadian timber when market prices remained above a

specified level; when prices fell below that level, Canada imposed export taxes and/or quotas.

Under the agreement, the United States returned about $4 billion that was collected from the

duties to the importers of record. The remaining deposits were split evenly between the U.S.

lumber industry and jointly agreed-upon initiatives. The parties agreed to terminate or dismiss all

active international and domestic court claims. The agreement also precluded new cases,

investigations and petitions, and actions to circumvent the commitments in the agreement and

established a third-party arbitration system to handle any disputes under the agreement.

Following a one-year cooling-off period after the agreement’s expiration, in November 2016, a

coalition of U.S. lumber producers petitioned the U.S. Department of Commerce’s International

Trade Administration (ITA) and the U.S. International Trade Commission (USITC) to initiate

AD/CVD proceedings against Canadian softwood lumber imports.255 In 2017, after the U.S. and

Canadian governments failed to reach a negotiated settlement, the Commerce Department began

collecting estimated duties for 2015 imports, with AD/CVD rates varying depending on the

firm.256 ITA issued final determinations in November 2017, but, after some Canadian softwood

lumber producers disputed the calculations, ITA revised the final AD/CVD rates—the dumping

margin (AD) was assessed at 3.20%-7.28% and the subsidy rate (CVD) was assessed at 3.34%17.99%.257

The Canadian government maintains that U.S. duties on Canadian softwood lumber are

“unjustified” and “act as a tax on American consumers, increasing building costs at a time of

Canada, House of Commons of Canada, Standing Committee on International Trade, U.S. Countervailing and

Antidumping Duties on Canadian Exports of Certain Softwood Lumber Products, hearing, 44th Parl., 1st sess., May 11,

2023.

253 Government of Canada, Natural Resources Canada, “Forest Land Ownership,” June 29, 2020; and U.S. Department

of Agriculture, Forest Service, “Table 2–Forest and Woodlands Area in the United States by Ownership, Region,

Subregion, and State, 2017,” Forest Resources of the United States, 2017, GTR WO-97, March 2019.

254 U.S. Department of Commerce, Softwood Lumber Subsidies Report to the Congress, June 2020.

255 U.S. Department of Commerce, International Trade Administration (ITA), “Certain Softwood Lumber Products

From Canada: Initiation of Countervailing Duty Investigation,” 81 Federal Register 93897, December 22, 2016; and

ITA, “Certain Softwood Lumber Products from Canada: Initiation of Less-Than-Fair-Value Investigation,” 81 Federal

Register 93892, December 22, 2016. For more information on the antidumping/countervailing duties process, see CRS

In Focus IF10018, Trade Remedies: Antidumping and Countervailing Duties.

256 U.S. Department of Commerce, “U.S. Department of Commerce Finds Dumping and Subsidization of Imports of

Softwood Lumber from Canada,” press release, November 2, 2017.

257 ITA, “Certain Softwood Lumber Products From Canada: Antidumping Duty Order and Partial Amended Final

Determination,” 83 Federal Register 350, January 3, 2018; and ITA, “Certain Softwood Lumber Products From

Canada: Amended Final Affirmative Countervailing Duty Determination and Countervailing Duty Order,” 83 Federal

Register 347, January 3, 2018.

Congressional Research Service

34

Canada: Background and U.S. Relations

surging inflation.”258 U.S. homebuilders—major consumers of softwood lumber—have criticized

the tariffs, arguing that they contribute to price volatility and increased housing costs.259 USTR

has repeatedly stated that Canada must create a level playing field for U.S. producers. U.S.

lumber producers have celebrated the “continued enforcement of U.S. trade laws” to maximize

long-term U.S. production and create a level playing field.260 Such producers have argued that the

United States does not need Canadian lumber imports to supply U.S. home construction, and that

maintaining a level playing field is needed to “retain production and availability of lumber

produced by U.S. workers to build U.S. homes.”261

ITA undertakes an annual administrative review of the AD/CVD orders, during which it adjusts

the duty rates. To date, ITA has completed five administrative reviews covering imports from

April 2017-December 2022.262 For the fifth administration review covering 2022, ITA assessed

the dumping margin for AD duties at 5.04%-10.44% and the CVD subsidy rate at 3.88%9.61%.263 The Canadian government stated that it was “extremely disappointed the U.S.

Department of Commerce has significantly increased its unfair and unwarranted duties on

softwood lumber from Canada.”264 U.S. lumber producers stated that “Canadian unfair trade

practices are making a bad situation worse by accelerating and deepening market downcycles,

resulting in today’s extreme low lumber prices, forcing U.S. mill closures and layoffs.”265 In

March 2024, ITA initiated its sixth administrative review, which will cover calendar year 2023.266

As noted above, Canada has filed legal challenges against the U.S. duties on softwood lumber.

Panels have issued decisions for a few cases (e.g., the WTO and NAFTA challenges), with results

being mixed for Canada and the United States.267 For the two WTO cases, Canada and the United

258 Government of Canada, Global Affairs Canada, “Statement by Minister Ng on U.S. Preliminary Duty Rates on

Canadian Softwood Lumber,” press release, January 24, 2023.

259 National Association of Home Builders (NAHB), “Statement from NAHB Chairman Jerry Konter on

Administration’s Refusal to Act on Lumber Tariffs,” press release, June 22, 2022.

260 U.S. Lumber Coalition, “U.S. Lumber Coalition Supports U.S. Department of Commerce’s Continued Trade Law

Enforcement Against Unfairly Traded and Harmful Canadian Lumber Imports,” press release, January 24, 2023.

261 U.S. Lumber Coalition, “U.S. Department of Commerce Confirms Higher Levels of Harmful Canadian Softwood

Lumber Subsidies and Dumping in Fifth Annual Administrative Review,” press release, August 13, 2024.

262 The first administrative review covered April 2017-December 2018. The subsequent administrative reviews cover

imports over one calendar year.

263 ITA, “Certain Softwood Lumber Products From Canada: Amended Final Results of Antidumping Duty

Administrative Review in Part; 2022,” 89 Federal Register 77826, September 24, 2024; ITA, “Certain Softwood

Lumber Products From Canada: Final Results of Antidumping Duty Administrative Review, Partial Rescission of

Administrative Review, and Final Determination of No Shipments; 2022,” 89 Federal Register 67067, August 19,

2024; and ITA, “Certain Softwood Lumber Products From Canada: Final Results of the Countervailing Duty

Administrative Review; 2022,” 89 Federal Register 67062, August 19, 2024.

264 Government of Canada, Global Affairs Canada, “Statement by Minister Ng on U.S. Department of Commerce Fifth

Review of Duties on Canadian Softwood Lumber,” press release, August 13, 2024.

265 U.S. Lumber Coalition, “U.S. Department of Commerce Confirms Higher Levels of Harmful Canadian Softwood

Lumber Subsidies and Dumping in Fifth Annual Administrative Review,” press release, August 13, 2024.

266 ITA, “Initiation of Antidumping and Countervailing Duty Administrative Reviews,” 89 Federal Register 15827,

March 5, 2024.

267 See, for example, World Trade Organization (WTO), “DS534: United States—Anti-Dumping Measures Applying

Differential Pricing Methodology to Softwood Lumber from Canada,” https://www.wto.org/english/tratop_e/dispu_e/

cases_e/ds534_e.htm; WTO, “DS257: United States—Final Countervailing Duty Determination with Respect to

Certain Softwood Lumber from Canada,” https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds257_e.htm; ITA,

“North American Free Trade Agreement (NAFTA), Article 1904; Binational Panel Review: Notice of Panel Decision,”

88 Federal Register 72428, October 20, 2023; and ITA, “North American Free Trade Agreement (NAFTA), Article

1904; Binational Panel Review: Notice of Panel Decision,” 89 Federal Register 41377, May 13, 2024.

Congressional Research Service

35

Canada: Background and U.S. Relations

States each appealed a ruling; neither appeal has been heard because the WTO Appellate Body is,

in effect, not functioning due to a lack of quorum.268

Congress may consider whether a new softwood lumber agreement is necessary and how a

potential agreement might impact U.S. producers. Congress may also consider the economic

impacts of lumber duties on U.S. consumers.

Government Procurement and Federally Funded Infrastructure

The Canadian government has expressed concerns about U.S. efforts to expand domestic sourcing

requirements for U.S. government procurement (such as the Buy American Act of 1993, 41

U.S.C. §§8301 et seq.) and federally funded infrastructure projects (commonly referred to as Buy

America requirements).269 Canadian officials and Members of Parliament have sought exemptions

for Canada, pointing to tightly integrated U.S.-Canada supply chains, with Canadian finished

products containing U.S. components and vice versa.270

Canada is excluded from USMCA’s chapter on government procurement; procurement

opportunities between the United States and Canada are covered by the WTO Government

Procurement Agreement.271 In January 2021, President Biden issued an executive order initiating

a review of domestic sourcing laws, such as the Buy American Act, and establishing the Made in

America Office in the Office of Management and Budget (OMB). The Made in America Office

manages the Buy American and Buy America waiver process, among other responsibilities.

Provisions in the 2021 Build America, Buy America Act (BABA; Division G, Title IX of the

Infrastructure Investment and Jobs Act, P.L. 117-58) affirmed and codified many of the

commitments from President Biden’s executive order. BABA also expanded Buy America

domestic sourcing requirements for federally funded infrastructure, including the materials and

types of projects covered. The Canadian government has argued that even with a waiver process,

these requirements disadvantage Canadian goods and services, noting that Buy America

requirements apply even if a federal agency funds a small part of an infrastructure project

undertaken by a state or municipality.272 U.S. officials have argued that the requirements apply to

only a small portion of U.S.-Canada trade volumes and will not have a large negative impact on

Canadian companies.273

In February 2023, OMB issued proposed guidance that would tighten and standardize Buy

America implementation and solicited public feedback.274 The Canadian government submitted

268 For more details, see CRS In Focus IF10645, Dispute Settlement in the WTO and U.S. Trade Agreements.

269 See, for example, Government of Canada, Global Affairs Canada, “Minister Ng Meets United States Trade

Representative Katherine Tai,” May 2, 2023. Buy America refers to several statutes and regulations that apply to federal

financial assistance for infrastructure-related projects. For more details, see CRS Report R47243, U.S. Government

Procurement and International Trade, and CRS In Focus IF11989, Congress Expands Buy America Requirements in

the Infrastructure Investment and Jobs Act (P.L. 117-58).

270 See, for example, Parliament of Canada, House of Commons of Canada, Special Committee on the Economic

Relationship Between Canada and the United States, “Buy America” Procurement Policies: An Interim Report, 43rd

Parl., 2nd sess., June 2021.

271 See CRS Report R44981, The United States-Mexico-Canada Agreement (USMCA), and CRS In Focus IF11651,

WTO Agreement on Government Procurement (GPA).

272 Government of Canada, Trade Commissioner Service, “The Buy American Act and Buy America Requirements,”

March 2, 2021.

273 See, for example, David L. Cohen, U.S. Ambassador to Canada, “Remarks at the Wilson Center Canada Institute,”

May 3, 2023, https://ca.usembassy.gov/remarks-by-ambassador-david-l-cohen-at-the-wilson-center-canada-institute/.

274 Office of Management and Budget (OMB), “Guidance for Grants and Agreements,” 88 Federal Register 8374,

February 9, 2023.

Congressional Research Service

36

Canada: Background and U.S. Relations

comments recommending that OMB guidance reflect the “unique nature” of the U.S.-Canada

trading relationship.275 In March 2023, President Biden and Prime Minister Trudeau agreed to

“continue discussions to carve-in Canadian goods into Buy America requirements.”276 Some

Canadian business and labor groups have expressed concerns that Buy American/Buy America

rules may encourage business to move operations from Canada to the United States, increase

costs for U.S. consumers, and have negative impacts on Canadian jobs.277

Energy, Environmental, and Natural Resources Issues

The United States and Canada maintain extensive energy ties (see “Bilateral Energy Trade”) and

have concluded a wide array of agreements at the federal, state/provincial, and local levels to

manage transboundary environmental and natural resources issues (see “Great Lakes

Cooperation” and “Columbia River Treaty”). The countries also have established specialized

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.

A word about cookies

We need a few to keep you signed in and the library working. The rest help us see which pages people use and where they get stuck. They stay off unless you say yes.