Introduction
Globalization has dragged several integration aspects into perspective. In line with the tenets of globalization, countries need to forge close co-operation with each other with a bid to ameliorating the existing relationship. One of the benefits of such close cooperation includes economic prosperity. As such, trade blocs and other integration-aimed organizations continue to emerge with the exact same goals- economic prosperity. Among the major or largest trade in the world today include the European Union (EU) and the North American Free Trade Agreement (NAFTA) whose comparison will be the subject of this discussion. This comparison, however, requires a prior extensive understanding of the reasons behind trade blocs other than adherence to the tenets of globalization. In this respect, trade blocs and their activities are not restricted to economic prosperity, but has certain political implications. Even so, the major reason is to advance the trade interests of the various regions within which the bloc operates. Besides, trade blocs assist in regional control concerning trade and politics with a cumulative effect of advancing a shared interest of the region. Other functions worth considering include establishment of tariffs that shields the region from external forces, promotion of regional political and security issues through trade, and technical cooperation within the bloc. While these functions seem completely desirable, some experts have expressed concerns against regionalism which they think may suppress free trade since trade blocs operates on principles of protectionism which often work against free trade. Regardless of the position, it is worth noting that trade blocs continue to be major components of economic globalization. At this point, their dominance seems inevitable as their functions expand from the realm of economics to other areas like politics. Following this line of thought, EU and NAFTA, despite their differences and similarities, continue to transform their regions and the world.
Overview of the EU and NAFTA
The European Union is both an economic and political union consisting of 28 member states majorly from Europe. It covers a geographical expanse of 4,475,757 km2 with an approximated population of more than 510 million people. Over the years, the institution has promoted an internal single market via a set of standardized policies and laws that are adopted by all member states and applies to them in equal measures. On the overall, these policies are developed with a view to ensuring unrestricted movement of capital, people, services and goods in the internal market. Also, the policies aim at standardizing trade policies and achieving a uniformity of economic and political doctrines, enacting legislation in both home affairs as well as justice affairs, and create a uniformity of policies in regional development, fisheries, and agriculture. In line with these aims, the European Union unveiled a monetary union in 1999 whose underlying motive was to facilitate the use of a common currency- the euro. The institution’s decision making system is a hybrid of inter-governmental and supranational frameworks, in the spirit of uniformity and equality. In total, there are seven primary bodies responsible for decision-making within the European Union framework. Commonly collectively referred to as the institutions of the European Union, these bodies include the European Parliament, the European Council, the European Central Bank, the Council of the European Union, the European Commission, the European Court of Auditors, and the Court of Justice of the European Union.
The origins of the European Union can be traced back to the European Coal and Steel Community (ECSC) and EEC (the European Economic Community) founded in 1951 and 1958 in that order. Over the years, the community has expanded both as a function of the growing policy framework which increases its power, and accession of newer members states which increases its area of coverage and dominance. It is worth noting that save for the United Kingdom, no member states have ever expressed their interest in leaving the European Union. According to Craig and De Burca (15), this stability can be attributed to the Maastricht Treaty of 1993 which led to the introduction of the European Citizenship. To this end, it is worth noting that European Union is the single largest economy globally (Staab 3). With an approximated population that is about 7.3% of the world’s, the bloc’s 2016 GDP hit its all-time high at 16.477 trillion U.S dollars, which constitutes an estimated percentage of 22.2% of the Universal nominal GDP (Staab 3). It is also critical to note that 27 of the current 28 members of the European Union pose a relatively high Human Development Index. One of its major successes throughout the years in action include the Nobel Peace Prize award of 2012. A uniform security and foreign policy has made the framework develop a defense and external relations role whose impact in the world cannot be understated. In light of its ever-increasing influence, some people have described the European Union as an emerging superpower.
The North American Free Trade Agreement (NAFTA), an EU counterpart that covers a relatively smaller geographical area, serves almost all the functions. The agreement, a brainchild of the USA, was signed by two other partners including Mexico and Canada. It is one of the main trilateral trade agreements in the North American region. Formed in the year 1994, the NAFTA came after the Canada-United States Free Trade Agreement which initially served the same purposes for which NAFTA was created. It operates through the reinforcement of two other supplementary organizations namely the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC).Of the three, Floudas and Rojas (52) notes that this agreement has been largely significant to Mexico, and the least significant to Canada. At the point of founding, the NAFTA’s goal was to eliminate trade and investment barriers among the three countries taking part in the agreement. Its eventual implementation in the year 1994 was immediately beneficial as it contribute to a significant elimination of tariffs between the U.S.A and Mexico within the first 10 years. In fact, all the tariffs would be removed save for the issues of certain U.S exports to Mexico that were scheduled for elimination in 15 years’ time from the point of inception of the NAFTA (Floudas & Rojas 52). It is noteworthy that at this point, a greater part of Canada-U.S trade was already enjoying the least of tariffs. However, just like the EU above, NAFTA provides room for international engagement. The 52nd chapter of the agreement outlays a framework that could be helpful in resolving global disputes through the interpretation of various precepts of the agreement and the associated policies. While its existence remains largely contested, with the latest controversies arising from the newly elected President Donald Trump of the United States, its impact has been felt across the region, and on an international scale. To this end, the ensuing discussion embarks on a comparison between these two regional and global trade and political bodies, with a recognition that the EU is older and larger than the NAFTA.
Similarities
Past researchers have tried to identify similarities between the NAFTA and the European Union without success. In fact, the differences between the two outweigh any possible similarities that may define their existence. Even so, two major similarities still stick out in the modus operandi of these two organizations namely liberalization of trade and combination of politics and trade. Indeed, the common characteristics of EU and NAFTA is the liberalization of trade between their member states. Schutze (47) notes that the European Union has contributed to the establishment of a single market throughout all its members’ territory covering all the 510 million citizens within its coverage. Through liberalized trade and a single market, the EU owns a greater portion of the global wealth as had already been seen. As a critical element of a liberalized trade, a monetary union known as the Eurozone reigns in the EU region and consist of 19 out of the 28 members (Aristovnik & Cec 7). The liberalized trade has attracted mega global corporations with 161 of the 500 top corporations having their headquarters in the European Union. It is largely recognized that formation of a common market formed the major underlying factor during formation of the institution.
The liberalized trade was aimed at facilitating free circulation of goods, people, capital, and services within the Union, with the customs union involving imposition of external tariff on all imports into the market. This is aimed at facilitating internal prosperity. However, once goods enter the market, they are free from any discriminatory taxes or custom duties of any kind. Just like in the EU, the NAFTA facilitates a liberalized trade featuring free movement of people, capital, goods and services and services among the three member states. However, unlike the EU, there is no common currency in the NAFTA. In fact, economists note that the NAFTA has had no aspirations in forging a monetary union or customs despite certain voices in Canada championing for the adoption of the US Dollar among the three states. Until recently, the agreement had no elements of a political union, and it largely operated strictly as a free-trade agreement. In the same vein, just like the seven previously mentioned decision-making pillars of the European Union, the NAFTA has three decision-making structures namely the Commission for Labor Cooperation (CLC), an intergovernmental Free Trade Commission (FTC), and Council for Environmental Cooperation (CEC). Though less visible or accentuated like those of the EU, these three pillars facilitate an occasional convergence of intergovernmental officials to deliberate on various issues facing the region and solve any due disputes. The commissions comprises secretariats who can lay a stamp of approval on a decision through two-thirds vote.
Another point of similarity stem from the fact that both institutions serve both economic and political roles. In particular, both the EU and the NAFTA have well-structured constitutions that define the limits and requirements of every argument in addition to specifying the various procedures appertaining to any activity within the cooperation framework. The EU operates on conferral principles which requires it to act within the limits of the provisions of the constitution (Schutze 53) just like the NAFTA’s body of policies and principles mandates it to act strictly within the provisions of the agreement and solve the disputes through the mechanisms specified by the agreement (Cherniwchan 137). On the same note, policies and laws adopted in both the NAFT and the European Union can fall into two classes namely regulations and directives. The former class describes laws that can be adopted with or without national measures of implementation, while the latter group strictly mandate the existence of national implementation mechanisms. However, a major difference come into play here. While the European Union has a definite parliament consisting of members elected by the citizens every five years (Schutze 47-49), the NAFTA only has a secretariat that is selected based on the existing agreement in the policies that are occasionally ratified (Burfisher, Robinson & Thierfelder 127; Gantz 1026). The similarity, therefore, is that both institutions have a well-defined system of government that mimics any political entity.
Differences
Apart from the obvious difference in the number of member states, these two organizations differ in a plethora of aspects that can be combined into four points namely nature or structure, level of economy, level of regional economic integration and effects of this economic integration. Concerning nature and structure, Staab (2) is the most powerful organization in the world in the world. Its dominance and stability has led to a situation where the organization is approaching a unified federal state with respect to agriculture, finance and trade. This makes the EU different from the NAFTA whose composing states are largely independent and the only unifying factor is not a shared heritage, but the mere agreement. While the EU has a parliament which formulates common laws for the member states, the NAFTA’s secretariat only solves disputes and formulates policies strictly appertaining to the agreement; these policies have no (or little) effect on the laws of the specific member states. NAFTA’s nature varies greatly from that of the European Union. As the name suggests, NAFTA is strictly a free trade agreement albeit one with environmental and labor treaties (Cherniwchan 130). Members who form part of this agreement have their own laws and currencies. Similarly, while the structural framework of the European Union consists of 27 developed countries, the NAFTA consists of one developing country (Mexico) and two developed countries (Canada and the U.S.A). Therefore, despite the size of some of the member states of the EU, the institution is more developed that its North American counterpart. The composition implies a completely different nature of economic integration between the two giant free-trade institutions.
The level of economy of EU also distinguishes it from NAFTA. The WTO statistics approximates EU GDP at 16.477 trillion US Dollars while that of NAFTA stands at approximately 15.094 trillion. Similarly, the EU exports and imports volume are the largest across the globe. To this end, it is important to note that despite the fact that NAFTA only comprises three member states, its competitiveness is comparable to that of the EU despite the maturity difference between the two in terms age. It also suffices to say that NAFTA has a relatively greater advantage considering the gap between the rich and the poor. In particular, the GDP of America is close to 10 times that of Mexico which makes the rich-poor gap wider unlike in the European Union where the gap is narrower. According to Staab (53) the biggest impact of an integrated trade framework comes from the complementarity among its members. The fact that most of the members states of the European Union are developed countries makes its impact a little less accentuated unlike that between the USA and Mexico. The situation gives EU a little room for the expansion of complementarity, thus, making trade opportunities relatively fewer. On this note, the combination of two developed countries and one developing countries provides a large complementarity space and host of opportunities that all can exploit for a greater economic impact.
The level of economic integration also differs between EU and NAFTA. Commonly, there are five primary levels of economic integration namely common market, free trade area, political union, customs union and economic union. In terms of hierarchy, the political union tops the hierarchy while the free trade area falls at the lowest level. In this respect, the EU is an economic union, thus, it falls fourth in the hierarchy of regional economic integration. This fourth level requires member states to remove trade barriers and craft a common trade policy against external players (Craig & De Burca 15). European Union has all these characteristics as in the overview section above. In contrast, the NAFTA, as a free-trade area, belongs to the first (lowest) level of the hierarchy of regional economic integrations. In this level (Craig & De Burca 15) notes that countries collude to remove trade barriers among themselves but the laws of each country apply in regulating trade relationships with the non-members.
The last yet critical difference concerns the impacts of the two which comprises the trade and foreign direct investment (FDI) effects. Given the economic situation of the EU member states, the advantages of trade creation are somewhat insignificant, unlike in the NAFTA. This point is reinforced by the previous illustration supporting that the EU is less advantageous than the NAFTA. The difference in effects can also be viewed from a standpoint of trade diversion. According to Cherniwchan (139), trade diversion denotes shift of trade to member states to the detriment of countries outside the institution regardless of the possibility of high effectiveness of nonmembers without trade barriers. In this sense, applying the previous logic of cost difference and composition of both NAFTA and EU, it is apparent that NAFTA still has more advantages as compared to the European Union. Trade diversion or trade creation notwithstanding, the overall goal is to expand the market size and expedite economic stardom.
Conclusion
In conclusion, the European Union and the NAFTA are major global trade blocs. With a foundational history dating back to the year 1958 and 28 member states, the EU is larger and more prosperous than NAFTA. Even then, it is noteworthy that NAFTA is almost equally competitive and given the advantages seen in the discussion, it could catch up with the European Union. There are numerous difference between EU and NAFTA than there are similarities. Nonetheless, the most outstanding similarity is the overall aim of creation of both trade blocs which can be coalesced into a quest for economic prosperity through market expansion and liberalization of trade. Besides these two similarities, the institutions are different on almost any aspect from nature and structure, to the level of economy and economic integration, to the effects of the integration. Everything else notwithstanding, it remains factual that these institutions are pivotal in economic globalization.