 regional trade blocs in different forms have increased and expanded. The EU has expanded to include several East European countries. Each of NAFTA countries has negotiated mutual free trade agreements with several countries. There are a few literatures on the consequences of 1) a free trade agreement between a major trading country of a big trade bloc such as NAFTA with EU or 2) a common and comprehensive free trade agreement between two major trade blocs. The EU: Regional integration with centralized institutions
The European Union was formed as a political partnership consisting 27 European countries. The EU was created after WW2. The first steps were to adopt economic cooperation. The basic idea was to trade with one another becoming interdependent and eventually reduces conflict. The EU put a social order in place, consisting of the: 1) allowing labor to move freely, 2) common competition rules, 3) unified and fair working conditions, 4) mutual environment, 5) estimating technical standards, and 6) transferring payments to match local growth and expansion.
Concept of Regional Economic Integration
National economic integration states that the countries of a physical and topographical area form a type of partnership. Regional economic integration can be mistook as an area where free trade can happen, a customs union, or a market that is common etc. NAFTA is an example of a free trade area. NAFTA included the US with Canada and Mexico. According to the NAFTA agreement, US, Canada and Mexico would work together to remove blocks to trade, and create and allow the movement of products and services, by supporting impartial competition in the free trade area. The European Union has a significant feature; the euro currency.
The then 11 member states launched the euro currency on January 1st 1999. At the beginning phase of the euro currency, it was sanctioned for transactions that did not require cash. The Euro was approved for equity and debt trading, bank transactions, business-to-business and payments by cheque. The euro transformed Europe (Warner, 1998) from “a jigsaw of costly protected markets into a vigorously competitive economic bloc, thereby enhancing international trade in the area”. The NAFTA: A Regional agreement without institutions
NAFTA represents a market of 379 million people with $6.5 trillion in production. The drive behind NAFTA was the establishment of a free trade area. Despite being a trilateral, it aimed at increasing international trade through the elimination of trade barriers. NAFTA could become more competitive in the world economy. The primary purpose of NAFTA is to assist the North American region in becoming more economically competitive with the rest of the world. It consists of US, Canada and Mexico. They set the rules regarding trade, investment and the provision of services. Despite the fact that free trade provides benefits, removing a trade barrier could cause damages to the shareholders and employees of the industry. The groups that get affected by foreign competition use politics to get protection from imports.
E.g. According to the U.S. International Trade Commission, US gaining from removing trade restrictions on textiles and apparel would have been nearly $12 billion in 2002. The EU has become more economically integrated by becoming a common market. This removes barriers to production, like capital and labor. As a common market, the EU manages individual nation’s tax, manufacturing, and agronomic policies. The EU nations have a single currency. The EU has free-trade agreements with other countries in the world. Under the terms of NAFTA, US, Canada, and Mexico segment tariffs on goods to reduce restrictions on trade in services and foreign venture.
Technology and Capital is another problem that NAFTA faces. The EU is different in the sense that all the member countries were developed nations. The evolution is homogeneous, while in NAFTA it’s not. NAFTA has not offered nor given any reparation, adjustments or any major infrastructure projects. The theory of Absolute Advantage and Comp