Question

Compare and contrast NAFTA with the EU. Which group is poised for greater growth in the 21st century and why?

Answer 1

NAFTA (North American Free Trade Agreement) is an agreement between three countries- Mexico, Canada and the US while the EU (European Union) is a treaty signed between 20 countries in the Europe (now it has 28 member countries). Both serve the main purpose of being a trade bloc.

The main goal of NAFTA is to eliminate barriers to trade and investment between the US, Canada and Mexico and it also seeks to eliminate non- tariff trade barriers and to protect intellectual property right of the products. Whereas the objective of EU was to create a single market through a standardized system of laws that apply to all member states. It has enabled countries to allow free movement of goods, sevices, capital and people. All countries maintain common policies on trade, agriculture, fisheries and regional development. A monetary union was established which allowed member countries (currently 18) to share the same currency (Euro). EU maintains permanent diplomatic missions throghout the world and represents itself at the UN, the WTO, the G-8, and the G-20.

Both the trade blocs differ in terms of size, power and reach. EU is larger in size, power and has a more global reach with its 28 members, while NAFTA has a smaller size with only 3 members.

EU have a variety of conditionality and compliance mechanisms to improve the institution building process of its developing nations. EU uses the monitoring and technical assistance systems to ensure that aspiring members meet the criteria for membership, use the financial aid properly and develop superior institutions and infrastructure. When new members join the EU, they become members of the political machinery. As members of that machinery, developing nations face condition for membership that are closely monitored by other members. This deep engagement gives emerging econmies an oppurtunity to see from the inside how successful economic systems operate. From there they learn to manage and build their own institutions. In contrast NAFTA is just about free trade. Mexico appears as a laggard because of the lack of institutionalization of learning and monitoring within the NAFTA framework.

The EU integration process is not simply a narrow economic interest, it is real-politic in the multilateral world. The core EU countries want political, social and economic stability. By pro-actively strengthening the institutions of its eastern neighbours in return for political voice and economic assistance, the core EU members gain a much more cohesive continent and much stronger club to compete in the world. Whereas in case of NAFTA, the economic integration requires much deeper institutional integration, harmonization and upgrading. Therefore for all practical purposes, NAFTA and the institutional development of Mexico are frozen.

So it is clear from the above statements that the EU has greater growth prospects in the future.