The United States–Canada Free Trade Agreement (CFTA, 1989) reduced and eliminated TARIFFs on PRODUCTs traded between the two countries, initiated a trade agreement on SERVICES, increased investor access in each country, and created new mechanisms for trade-dispute resolution. While few Americans paid much attention to CFTA, it was the blueprint for the much more widely debated NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA). During the early 1980s, the Reagan administration, pursuing a FREE TRADE agenda, created the Caribbean Basin Initiative increasing access to the U.S. market for noncommunist countries in the Caribbean and Central America, completed a trade agreement with Israel, and pushed for liberalization in the Uruguay Round of the General Agreement on Tariffs and Trade (see WORLD TRADE ORGANIZATION). The GATT negotiations were stalled, and at a meeting in Canada known as the Shamrock Summit, U.S. president Ronald Reagan and Canadian prime minister Brian Mulroney agreed to pursue a bilateral trade agreement. Historically Canadian leaders have entered into negotiations with the United States very cautiously. Few Americans know that one of the first acts during the American Revolution was sending a delegation led by Benjamin Franklin to Canada, inviting Canadians to join in the rebellion against Britain. Later, during an economic slowdown (1849), some Canadian leaders called for Canada’s annexation to the United States. While geographically the larger country, Canada has one-tenth the U.S. population and has often resented the United States’ economic, political, and cultural dominance in North America. Canada had also found in the past that it was easier to negotiate with the United States as part of a multilateral trade agreement than to “go it along.” In spite of these reservations, Canada has needed continued access to the huge U.S. market, and the United States buys over three-fourths of Canadian exports. The United States and Canada are each other’s largest trading partner, and before CFTA, 75 percent of products already traded duty-free. Most existing tariffs were at a rate of 5 percent of the value of the product. CFTA immediately eliminated some tariffs and phased out others over 5- and 10-year schedules with a goal of “virtual free trade” between the two countries. A few nontariff barriers were allowed to remain, based on national security interests. The U.S. agenda in pursuing CFTA was multifaceted. The United States was shaken by the oil EMBARGOes during the 1970s, and Canadian nationalism in the early 1980s added to U.S. anxiety over access to Canada’s gas, oil, and other mineral RESOURCES. The United States was also frustrated by the lack of progress of GATT negotiations, particularly on issues concerning trade in services, INVESTMENT, and INTELLECTUAL PROPERTY. CFTA gave the United States access to Canadian minerals, created new rules for trade in services, and reduced government control of DIRECT INVESTMENT by U.S. nationals. One of CFTA’s important features was the RULES OF ORIGIN. Free-trade agreements have a critical problem in that since the parties have not established a common set of tariffs for trade with the rest of the world, producers in other countries can ship their goods into the free-trade partner with the lowest applicable tariff and then export the goods to another free-trade partner. U.S. negotiators recognized the potential for this problem and in CFTA created rules for defining which products could be shipped from one country to the other without tariff. CFTA rules thus allow all goods “wholly obtained or produced,” “substantially transformed,” and meeting U.S./Canadian “content” rules. “Wholly obtained or produced” included minerals, fish, and agricultural goods. “Substantially transformed” has often been a subject of trade disputes and lawsuits; under CFTA it became defined as a good that has changed category in the HARMONIZED TARIFF SYSTEM. This meant that if any product imported from a third country, such as apples, was substantially transformed (used to make an apple pie), it could be shipped without duty between the two countries. In CFTA the two countries agreed products containing at least 50 percent U.S. and Canadian materials could trade freely. CFTA also created new rules regarding trade in services. At the time, GATT negotiations on services trade were stalled, and U.S. negotiators recognized that new rules on free trade in services could affect those negotiations. Since the United States is highly competitive in services markets, it pushed hard for as much trade liberalization as the Canadians would tolerate. CFTA expanded trade in services, but only in “covered” services. Many services important to international trade, including legal, telecommunications, and customs brokers, were excluded from the agreement. One of CFTA’s innovations was the creation of new trade-dispute mechanisms. The agreement created the Canada–United States Trade Commission (TC), ordinarily comprised of just the international trade representatives of the two countries (or their designees), and ad hoc committees and working groups. The TC provides each side of a trade dispute with a forum to discuss issues and resolve disputes. If a dispute cannot be resolved, it is sent to binding ARBITRATION before a qualified panel. In addition, CFTA created binational panels to hear complaints about DUMPING and countervailing duties. These panels have been used often, mostly by Canadian companies to pursue claims against U.S. companies.