Historically, U.S. industry has had broad access to the Canadian defense procurement market. Recently, however, several unsettling trends have emerged. U.S. industry's share of Canadian defense prime contracts has declined, and there is growing concern over Canada's industrial and regional benefits (offset) policy. Canadian defense procurement policy contains provisions favoring Canadian defense firms and imposes significant offset obligations on foreign defense suppliers. We conclude that U.S. industry's performance in this market has been affected by these policies. Accordingly, we recommend that DoD seek a free market for defense trade with Canada. This goal should be achieved by extending the authority of the United States-Canada Permanent Joint Board on Defense to include defense trade issues, restructuring the existing network of forums dealing with bilateral defense trade, and negotiating and incorporating into the United States-Canada Free Trade Agreement clauses for the mutual reduction of buy-national preferences and other impediments to free defense trade between Canada and the United States. U.S.-Canadian defense trade, U.S.-Canadian defense cooperation, Canadian defense procurement practices, NATO defense trade.