With the introduction of worlds overall economy, all countries on the planet are naturally to operate with others especially their neighbours. As a necessary way to operate, regional financial integration becomes more important in the post-war period. "Regional financial integration is contracts between countries in a geographic region to lessen tariff and non-tariff barriers to the free move of goods, services, and factors of development between one another" (Lecture 10). You will find nearly 180 regional trade groups on the globe, and every local trade contracts must be educated to the WTO (Morrison, 2002).
The European Union (EU) is one of the local economic groups in the world. There are 27 member states in EU and all of them situated in Europe. From 1957 to 2007, europe has experienced six expand, and during the last sixty years, the European Union has become one of the most financially and politically involved regions in the world (EU website). However, in North America, the North American Free Trade Contract (NAFTA) also created its unique global trading bloc. The NAFTA was founded in 1994, comprises the US, Canada and Mexico. The goal of NAFTA is reducing the trade barriers of member countries (Office of the US Trade website). Although EU and NAFTA are essential integrated regions on the planet, at the same time, there are a few common points on their trading blocs. However, some dissimilarities are founded between EU and NAFTA for the various situation of trade areas. In this article, the specific differences will be analyzed between European union and NAFTA in the first part. Then, there are three same items of EU and NAFTA in the next part of main body. The final outcome will be given in the long run.
The variations between European union and NAFTA have four things. The first point is that the several of mother nature. The European union is the world's most effective international organizations, getting close a unified national state in terms of trade, agriculture and fund, so the politics system of European union differs from other major trade bloc. In europe, it has its own law, currency, insurance plan and flag. All of the member countries must abide by the rules of EU including the government. Compared with European union, NAFTA has different aspect. North American Free Trade is a free trade arrangement with some labor and environmental agreements. It just an arrangement on economics Instead of rules above the countrywide government and laws. The customers of NAFTA have their own currencies and regulations, and they're all depended. Alternatively, the structure of the member state governments is different. You can find 27 countries in EU, and everything the countries are developed countries. It means that the EU is an extremely developed economy even though some of countries are extremely small. In contrast, the NAFTA only has three member countries including two developed countries and a expanding country. It's the first regional financial integration in the world that contains developed country and producing country. The made up of two different way also lead to the several of integrated mother nature between the European union and the NAFTA.
The second difference is the amount of economy. Based on the statistics databases form WTO, the GDP of the EU in 2011 is 17, 584, 434 million dollars. The export and transfer of the European union are the greatest on earth in 2011 (WTO website). That appears an enormous data, but there are 27 countries in the European union and each country's average body is not big. However, the GDP of NAFTA in 2011 is 15, 094, 000, almost equal to the EU's (WTO website). Although there are just three countries in the NAFTA, the competitiveness can be comparable with europe. Specifically, in contrast to the EU, NAFTA has a larger gain. The GDP of America is 10 times that of Mexico, this means the gap is bigger between the abundant and poor than the European union members. The biggest advantage of regional economic integration is trade complementary between your associates of region. It might bring the most profit to both attributes. For europe, the member state governments are developed countries, the level and situation of development is resemblance. Therefore the creation of the trade complementary space is little, and trade opportunity is relatively small. Yet for the UNITED STATES Free Trade Area, the member claims are obvious economic conditions. Like a developed country, the United States and Canada may take advantage of its advanced technology and knowledge intense industry, through the stream of goods and capital to help expand strengthen their prominent position in Mexico; and producing country, which is Mexico, can use their cheap labors to further reduce the expense of products. Then make an effort to develop its labor-intensive products and export these products to america and Canada. At exactly the same time, the United States can get huge investment and technology transfer in order to market the adjustment of its professional structure, according to this situation, america enable to increase the upgrading of local products (The NAFTA website).
The third difference is the amount of Regional Economic Integration. There are five levels that happen to be free trade area, customs union, common market, economical union and politics union respectively (Morrison, 2006). A political union is the highest extend of countrywide integration, free trade area the cheapest. Each level of REI merges prior level's properties. For the European union and NAFTA, they belong to different level.
The EU is defined as an financial union this is the fourth level of Regional Economic Integration. "Economical integration whereby countries remove barriers to operate and the activity of labor and capital, erect a standard trade policy against nonmembers, and organize their economic procedures is called an financial union" (Outdoors, 2002). In 1959, the EU begun to eliminate internal tariffs, which process was done in 1967. At the same time, the EU would like to set up a common exterior tariff. So far, the European union in the WTO counsels as an area instead of different counties. For example, the EU has the free move of products and factors of development between members, one common external trade insurance policy that proven in 1967 and a money that is EMU. Additionally, the EU also offers the harmonized taxes rate, establishes the normal fiscal insurance policy and monetary which is Euro. All of them show that the European Union is here at the amount of financial union, and little by little developed to the political union.
However, the NAFTA belongs to the first level, free trade area which is the cheapest degree of the regional monetary integration. "Economical integration whereby countries seek to remove all obstacles to operate between themselves, but each country determines its own obstacles against nonmembers" (Wild, 2002). Due to the factor of geography, Canada and the United States are the most significant trade companions with each other. In 1989, both of these countries want to build a free trade area that the goal was eliminate all trading tariffs. At the same time, Mexico signed up with the WTO and wanted to expend its trading. In 1994, the NAFTA shaped. Although the North American Free Trade Area eliminates trade barriers, this means it can offer the capability of trade and promote the economical communication for member countries, the level of NAFTA still stay in the cheapest level. It is different from the European Union which has a series of common policy, the NAFTA only realize to get rid of barriers to the goods and services trading. Although there's a superpower that is the United States to be always a leader in the NAFTA, it is not unified the tax rate and currency, etc. The member countries in the NAFTA still use their own economic and currency plan. In this case, although the UNITED STATES free trade area is one of the economical integration, it is merely the first level in the REI.
The last difference is the consequences of regional economic integration between the European union and the NAFTA. You will discover two parts about the effects, first is trade results and the second reason is FDI effects. In this article, it is mainly to present the trade results.
"Production shifts to better manufacturers for reasons of comparative advantage, allowing consumers access to more goods at a lesser price than would have been possible without integration" (Daniels, 2011). For europe, all the member expresses are developed countries and the durability is similar as the price of products manufactured in developed countries usually high. If the tariff is cancelled, member claims could import goods with a minimal price instead of the knowledge products that indigenous produced. But scheduled to the cost of goods generally high, even the importing country imports products from other member state governments and forms the trade creation, the purchase price in accordance with themselves is still high. This example shows that the trade creation may bring advantages relatively small in europe. However, for the NAFTA, Mexico, which is a developing country, the price tag on products is usually lower than the developed counties. When free trade area founded, america and Canada allow to import the reduced cost products to their market. Like this, the developed countries can save their resources and work force. Then, it can reduce the expense of domestic production while the developing countries allow to increase their transfer and export trade and give play to their own advantages. Thus it can be seen, in the trade creation, the NAFTA have significantly more advantages than the European union.
"Trade shifts to counties in the group at the trouble of trade with countries not in the group, even though the nonmember companies might be more efficient in the lack of trade barriers" (Daniels, 2011). As stated before, the cost of product in developed countries is greater than the expanding countries. Although there is absolutely no trade barriers between your EU customers, it is unadvisable that provide up to transfer goods form other expanding countries while choose to cooperate with the says in the free trade area. In cases like this, even when a tariff restriction, the price tag on goods from other developing countries is leaner than the developed countries'. So the trade diversion impact is not suited to the EU. On the other hand, the NAFTA possessed more advantages. For instance, assume an American company is importing the same goods from Mexico and China. And there is a free trade area between US and Mexico but without China. This American company must be more likely to import goods from Mexico than China because there are no trade obstacles in the NAFTA and the traffic is far more convenient. This is the trade diversion and could bring more economical gain for the member states in a tree trade area.
Whether the trade creation or the trade diversion, the function is to get better economic effect and broaden their market size.
These will be the difference between your European union and the NAFTA above; however, there are three common items of European union and NAFTA. First of all, unlike other global trading bloc, European union and NAFTA have their own physical attributes. All the members of European union are positioned in Europe and the member countries of NAFTA including the United States, Canada and Mexico are neighbours. These countries have convenient transport and it is simple to operate. Other trade groupings such as ASEAN and APEC don't have the geographical features.
Secondly, the reason why these two trading bloc developed is actually the same. After World Conflict, there are two superpowers developed on earth, america and the Soviet Union respectively. European countries do not want be handled by the united states and taken care of immediately the threat of the Soviet Union when the frigid war started out. Thus, the Western european Community was established in 1965 this is the predecessor of europe. Likewise, with the progress of European union and the rise of Japan, the position of america on world economic and trade is reduced. In order to keep its own financial status, the United States proposed to establish the UNITED STATES Free Trade Area. In a word, whether the European union and NAFTA, the cause of the establishment is good for the assistance of market and trade, In order to protect and expand its economic pursuits in international trade.
Thirdly, both EU and the UNITED STATES Free Trade Area is the product of regional financial integration. Because the 1950s development, after two decades of swift development, regional economical integration has been better in the 1990s. The process of regional financial integration promotes the local international financial organization's establishment and development. A lot of important local and international economic organizations are economical integration organizations such as EU and NAFTA. Even though the EU and NAFTA located different areas, the goal of them which is the REI's purpose is the same. Regional monetary integration reflects the introduction of international monetary and politics are to the path of equality and democracy.
Regional financial integration is an operation that says in a geographic area cooperates with another country to decrease or remove obstacles to the international movements of goods, people, or capital. The goal of countries experience monetary integration isn't just to improve international trade and investment but also to improve living specifications for individuals (crazy, 2003). That is the goal of the EU and the NAFTA. Although there are dissimilarities between these two groups, for occasion, the different monetary levels, integration levels and results, it is without doubt that the top role of the European union and the NAFTA in the financial integration. In short, whether the EU and NAFTA, also other economical organizations, they have its own functions along the way of regional economical integration and contribute of trading between all member says.
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