The history of the close economic integration of our two countries has been punctuated by the signing of three important trade agreements. The first, in 1965, was the "Auto Pact". This was a sectoral form of free-trade agreement that established a single, tariff-free market for vehicles and auto parts in North America.

The Auto Pact is often seen as a sort of precursor to the 1989 Canada-U.S. Free Trade Agreement, which removed almost all tariffs between the two countries. This was followed by the North American Free Trade Agreement in 1994, which brought Mexico into the fold.

Both these free-trade agreements were controversial in much of Canada. There was a widely-held perception that the Canadian economy simply would not be able to compete against the sheer size and power of the United States, or against the lower labour and business costs in Mexico. Now, there's no question that some of our firms did have difficulties adjusting in the early years. But by the late 1990s, it was clear that freer trade was bringing major benefits to Canada. It opened new markets to us. And the resulting competitive pressure on our entrepreneurs spurred innovation and productivity efforts that are showing a real payback today. Canadian exports have grown strongly. And Canadian consumers have had access to more products at lower prices.

So far, I've talked about how Canada and the United States have pursued some of their economic goals through freer trade in goods and services. But what about our financial systems and the movement of capital?

First, the Canadian and American financial systems are closely aligned in important respects. Canada has fostered open capital markets for many years, and we have particularly strong links with U.S. financial markets. Canadian companies fund about half of their bond issues in U.S. dollars, and make up by far the largest national group of foreign issuers listed on a U.S. exchange. As well, Canadian banks have about one third of their assets abroad, and those assets are mostly denominated in U.S. dollars.

Second, both our countries are dealing with corporate governance issues. U.S. legislators and regulators have been dealing with the fall-out from corporate malfeasance in recent years and with investor concerns following the bursting of the tech bubble. Canadian policy makers have also been working to increase integrity and investor confidence through a range of reforms. These relate to security regulation, accounting and auditing standards and oversight, corporate governance and enforcement.

Third, policy makers and market participants in both Canada and the United States have been focused on enhancing financial market efficiency through increased transparency. As well, work continues on improving efficiency, risk mitigation, and business continuity planning in our clearing and settlement systems. In all of these undertakings, it will be important to consider cross-border issues and opportunities—not just domestic imperatives—if we are to reap the full benefits that the globalization of finance has to offer.

Now let me turn to macroeconomic policy. In both countries, low inflation is a key monetary policy objective. We both believe that low, stable, and predictable inflation is the best contribution monetary policy can make to achieving the goal of high and sustainable economic growth. While the Federal Reserve expresses this as a dual mandate of price stability and sustainable growth in output and employment, in Canada we have a single, explicit inflation target.