With the development of worlds economy, all countries in the world are naturally to trade with

others especially their neighbours. As a necessary way to trade, regional economic integration becomes
more important in the post-war period. "Regional economic integration is agreements between
countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods,
services, and factors of production between each other" (Lecture 10). There are nearly 180 regional
trade groups in the world, and every regional trade agreements must be informed to the WTO
(Morrison, 2002).
The European Union (EU) is one of the regional economic groups in the world. There are 27
member states in EU and all of them located in Europe. From 1957 to 2007, the European Union has
experienced six expand, and over the last sixty years, the European Union has become one of the most
economically and politically integrated regions in the world (EU website). However, in North America,
the North American Free Trade Agreement (NAFTA) also formed its unique global trading bloc. The
NAFTA was founded in 1994, comprises the US, Canada and Mexico. The purpose of NAFTA is
eliminating the trade barriers of member countries (Office of the US Trade website). Although EU and
NAFTA are important integrated regions in the world, at the same time, there are some common points
on their trading blocs. However, some differences are founded between EU and NAFTA for the
different situation of trade areas. In this essay, the specific differences will be analyzed between EU
and NAFTA in the first part. Then, there are three same points of EU and NAFTA in the second part of
main body. The conclusion will be given in the end.

The differences between EU and NAFTA have four points. The first point is that the different of
nature. The EU is the world's most powerful international organizations, approaching a unified federal
state in terms of trade, agriculture and finance, so the political system of EU is different from other
major trade bloc. In the European Union, it has its own law, currency, policy and flag. All the member
countries must abide by the rules of EU including the government. Compared with EU, NAFTA has
different nature. North American Free Trade is a free trade agreement with some labor and
environmental agreements. It just an agreement on economics Instead of rules above the national
government and law. The members of NAFTA have their own currencies and laws, and they are all
depended. On the other hand, the composition of the member states is different. There are 27 countries
in EU, and all the countries are developed countries. It means that the EU is a highly developed
economy although some of countries are very small. In contrast, the NAFTA only has three member
countries including two developed countries and a developing country. It is the first regional economic
integration in the world that consists of developed country and developing country. The composed of
two different way also lead to the different of integrated nature between the EU and the NAFTA.
The second difference is the level of economy. According to the statistics database form WTO, the
GDP of the EU in 2011 is 17,584,434 million dollars. The export and import of the EU are the largest
in the world in 2011 (WTO website). That looks a huge data, but there are 27 countries in the EU and
each country's average figure 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 the European Union. Specifically, in contrast to the EU,
NAFTA has a greater advantage. The GDP of America is 10 times that of Mexico, which means the gap
is bigger between the rich and poor than the EU members. The biggest advantage of regional economic
integration is trade complementary between the members of region. It could bring the most benefit to
both sides. For the European Union, the member states are all developed countries, the level and
situation of development is resemblance. So the formation of the trade complementary space is little,
and trade opportunity is relatively small. Yet for the North American Free Trade Area, the member
states are obvious economic conditions. As a developed country, the United States and Canada can take
advantage of its advanced technology and knowledge intensive industry, through the flow of goods and
capital to further strengthen their dominant position in Mexico; and developing country, which is
Mexico, can use their cheap labors to further reduce the cost of products. Then try to develop its labor-
intensive products and export these products to the United States and Canada. At the same time, the
United States can get huge investment and technology transfer in order to promote the adjustment of its
industrial structure, according to this situation, the United States enable to speed up the upgrading of
domestic products (The NAFTA website).

The third difference is the level of Regional Economic Integration. There are five levels which are
free trade area, customs union, common market, economic union and political union respectively
(Morrison, 2006). A political union is the highest extend of national integration, free trade area the
lowest. Each level of REI merges previous level's properties. For the EU and NAFTA, they belong to
different level.
The European Union is defined as an economic union that is the fourth level of Regional Economic
Integration. "Economic integration whereby countries remove barriers to trade and the movement of
labor and capital, erect a common trade policy against nonmembers, and coordinate their economic
policies is called an economic union" (Wild, 2002). In 1959, the EU begun to eliminate internal tariffs,
and this process was finished in 1967. At the same time, the EU wants to set up a common external
tariff. So far, the EU in the WTO counsels as a region instead of separate counties. For example, the
EU has the free flow of products and factors of production between members, a common external trade
policy that established in 1967 and a common currency that is EMU. Moreover, the EU also has the
harmonized tax rate, establishes the common fiscal policy and monetary which is Euro. All of them
show that the European Union has arrived at the level of economic union, and gradually evolved to the
political union.
However, the NAFTA belongs to the first level, free trade area which is the lowest level of the
regional economic integration. "Economic integration whereby countries seek to remove all barriers to
trade between themselves, but each country determines its own barriers against nonmembers" (Wild,
2002). Because of the factor of geography, Canada and the United States are the largest trade partners
with each other. In 1989, these two countries want to build a free trade area that the goal was eliminate
all trading tariffs. At the same time, Mexico joined the WTO and wanted to expend its trading. In 1994,
the NAFTA formed. Although the North American Free Trade Area eliminates trade barriers, which
means it can provide the convenience of trade and promote the economic communication for member
countries, the level of NAFTA still stay in the lowest level. It is different from the European Union
which has a series of common policy, the NAFTA only realize to eliminate barriers to the goods and
services trading. Although there is a superpower that is the United States to be 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 policy. In this case, although the North American free trade area belongs to the
economic integration, it is just the first level in the REI.
The last difference is the effects of regional economic integration between the EU and the NAFTA.
There are two parts about the effects, first is trade effects and the second is FDI effects. In this essay, it
is mainly to introduce the trade effects.
Trade Creation
"Production shifts to more efficient producers for reasons of comparative advantage, allowing
consumers access to more goods at a lower price than would have been possible without integration"
(Daniels, 2011). For the European Union, all the member states are developed countries and the
strength is similar while the price of products made in developed countries usually high. When the
tariff is cancelled, member states could import goods with a low price instead of the experience
products that indigenous manufactured. But due to the cost of goods generally high, even the importing
country imports products from other member states and forms the trade creation, the price relative to
themselves is still high. This situation shows that the trade creation can bring advantages relatively
small in the European Union. However, for the NAFTA, Mexico, which is a developing country, the
cost of products is usually lower than the developed counties. When free trade area founded, the United
States and Canada enable to import the low cost products into their market. Using this method, the
developed countries can save their resources and labor force. Then, it can reduce the cost of domestic
production while the developing countries enable to expand their import and export trade and give play
to their own advantage. Thus it can be seen, in the trade creation, the NAFTA have more advantages
than the EU.

Trade Diversion
"Trade shifts to counties in the group at the expense of trade with countries not in the group, even
though the nonmember companies might be more efficient in the absence of trade barriers" (Daniels,
2011). As said before, the cost of product in developed countries is higher than the developing
countries. Although there is no trade barriers between the EU members, it is unadvisable that give up to
import goods form other developing countries while choose to cooperate with the states in the free
trade area. In this case, even if a tariff restriction, the price of goods from other developing countries is
lower than the developed countries'. So the trade diversion effect is not suitable for the EU. In contrast,
the NAFTA had more advantages. For example, assume that 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 likely to import goods from Mexico than China because there
are no trade barriers in the NAFTA and the traffic is more convenient. This is the trade diversion and
could bring more economic benefit 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
expand their market size.
These are the difference between the EU and the NAFTA above; however, there are three common
points of EU and NAFTA. Firstly, unlike other global trading bloc, EU and NAFTA have their own
geographical attributes. All the members of EU are located in Europe and the member countries of
NAFTA including the United States, Canada and Mexico are neighbours. These countries have
convenient transportation and it is easy to trade. Other trade groups such as ASEAN and APEC do not
have the geographical attributes.
Secondly, the reason why these two trading bloc formed is basically the same. After World War
, there are two superpowers formed in the world, the United States and the Soviet Union respectively.
Europe do not want be controlled by the US and responded to the threat of the Soviet Union when the
cold war started. Thus, the European Community was established in 1965 that is the predecessor of the
European Union. Similarly, with the growth of EU and the rise of Japan, the position of the United
States on world economic and trade is decreased. In order to keep its own economic status, the United
States proposed to establish the North American Free Trade Area. In a word, whether the EU and
NAFTA, the cause of the establishment is for the cooperation of economy and trade, In order to protect
and expand its economic interests in international trade.
Thirdly, both the European Union and the North American Free Trade Area is the product of
regional economic integration. Since the 1950s development, after twenty years of rapid development,
regional economic integration has been improved in the 1990s. The process of regional economic
integration promotes the regional international economic organization's establishment and
development. A large number of important regional and international economic organizations are
economic integration organizations such as EU and NAFTA. Although the EU and NAFTA located
different areas, the purpose of them which is the REI's purpose is the same. Regional economic
integration reflects the development of international economic and political are towards the direction of
equality and democracy.
Regional economic integration is a procedure that states in a geographic area cooperates with
another country to decrease or remove barriers to the international movement of goods, people, or
capital. The goal of countries experience economic integration is not only to raise international trade
and investment but also to enhance living standards for the people (wild, 2003). That is the goal of the
EU and the NAFTA. Although there are differences between these two groups, for instance, the
different economic levels, integration levels and effects, it is no doubt that the important role of the EU
and the NAFTA in the economic integration. In a word, whether the EU and NAFTA, also other
economic organizations, it has its own functions in the process of regional economic integration and
make a contribution of trading between all member states.
Advantages Disadvantages And Comparisons EU And NAFTA
This essay is aimed at comparing the progress of competition strategy that exists between the
European Union (EU) and the North American Free Trade Agreement (NAFTA). Realization of
competition policy is equally of importance to enlarging the free trade in the two organizations. The
two unions are federations but they differ in the status and in the influence (Jones, 2001). The concept
of the area economic integrations implies that the countries of geographical area unite in some form of
partnership to promote trade and also development. North American Free Trade Agreement (NAFTA)
is a good example of free trade region, while the European Union originated from a usual market form
of area economic integration to a large economic union.
Similarities and Differences between NAFTA and EU
 The foremost character of the Free Trade Area and EU is the liberalization of the trade ruling for
the members. Secondly, the removal of the business barriers that are placed against the members and
these are inclusive of the removal of the tariffs, the quotas, and several other non-tariff barriers and
finally the elimination of the business barriers by certain given deadlines (Steedman, 1999). The other
character is the imposition of a usual tariff to non member countries. This implies that the countries that
are members of the custom unification vow to liberalize the trade rules and also come up with a
common tariff for the countries that are not members.
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Differences
The United States is advanced than Canada and Mexico in terms of population, the dimension, the
value of its economy and worldwide status. In exception of some few defined areas, North American
Free Trade Agreement (NAFTA) does not have the usual antitrust policies that exist in the European
Union (EU), and these distinctions have expanded since the year 1994. The exact date of North
American Free Trade Agreement (NAFTA) as a Council Regulation has promoted the standardization
of competition set of laws in the European Union EU, while NAFTA has not been able to refine its own
competition policies as initially contemplated. More so North American Free Trade Agreement
(NAFTA) does not have the usual supranational institutions that are found in the European Union EU,
for example, they have no commission, no court justice and this excludes competition rules from its
dispute decision procedures, which in contrary ends up in differences on competition rules that are
forwarded to the World Trade Organization (Jones, 2001). The lack of excess robust competition rule
within North American Free Trade Agreement (NAFTA) hinders the progress of North America
Regional competition rule and promotes the importance of support measures non-NAFTA.
Advantages of NAFTA and EU
A universal market covers all attributes of a Free Trade Area and of customs unification, while
totaling up mobility of aspects of production is the fourth characteristic. Also included is mobility of
resources, manual labor, and technology. The mobility of the workforce demands that the countries that
are members of the trade union come up with a universal policy of visa and also general position on
citizenship. In addition, the member countries comes up with common policies to complement
principles, have communal acknowledgment or acceptance of each others measures, or concur on
minimum measures. Some of the examples of standards demanding common rules are inclusive of
values on subsidies, measures on health and safety, anti-trust values, and professional licensing values
(Steedman, 1999).
The other advantage is that the two promote free trade through bringing about economic union.
That characteristic is aimed at seeking economic incorporation by harmonizing the fiscal and monetary
policies, coming up with a common currency, and also establishing a super-national leading authority.
An example is a super-national leading influence is the European Parliament that is established by the
European Union countries. Politically coming together is the crucial stage along the area economic
incorporation path. A political union comes up with all economic and political union to the members of
an economic blending.
The importance of this upcoming provision is that, at this time the European Union (EU)
competition ruling is not only standardized at its intensity, but also important at the national level.
National competition act should mainly only forbid what European Union law prohibits, and should not
allow what EU law does not allow. Contrary, NAFTA does not have common antitrust policies that are
consistent right through its vicinity; furthermore the antitrust ruling of the Parties can forbid neither of
the performances of the partys desire without referring to any competition act custom but their
personal nationwide policy options. In fact lacking the least average in most cases fails to bode
properly for efficient use of antitrust rule in the NAFTA region (Yeats, 2001). The solitary exemption is
that NAFTA denotes that state-designated cartels may not apply its monopoly situation to take on
anticompetitive performances in a non-monopolized bazaar in its region that negatively affect an outlay
of a financier of any other Party, this is inclusive of the discriminatory stipulation of the dominating
good or service, acquisitive conduct or the cross subsidization .
The ongoing and comprehensive exclusion of trade obstacles among United States, Mexico and
Canada for more than 15 years has fully, phased exclusion of import tariffs. The free trade has also
enabled the exclusion of most National Transportation Safety Board (NTBs). The NAFTA and the EU
has greatly promoted the security of intellectual rights of property. The procedures of dispute
settlement and the Side agreements on ecological security and labor law Mexico has in most cases been
able to benefit the most, with access to big industrial bazaars and the upcoming inward savings flow in
Canada sustained its first choice in the US souk and hope for later access to South American markets
(Trefler, 1995). United States stands to benefit from access to the Mexican Market and inexpensive
work force and sections, access to dependable oil supplies, and fewer immigration pressures; in
contrast, the benefits are unpretentious. The main United State losers from NAFTA are import-
protected trades who are in competition with Mexican producers, and untrained workers.
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 Disclaimer
This essay has been submitted to us by a student in order to help you with your studies. This is not
an example of the work written by our professional law writers.
North American Free Trade Agreement (NAFTA) is the union that successfully brought together
the United States with Canada and Mexico business partners. Under Article 102 of the NAFTA Agreed
to work cooperatively to do away with barriers to do business in, and ease the cross border association
of all goods and services that are between the territories of the Parties; enhance conditions of equal
competition in the free trade area; enhance substantially outlay chances in their own territories; provide
sufficient and effective security and the enforcement of intellectual property rights in each and every
Partys territory; come up with an effective processes for the execution and use of this Agreement, also
for its shared administration and the resolution of all disputes; and come up with a framework for more
trilateral, local and multilateral collaboration to increase and improve the benefits of the given
Agreement.
NAFTA is a congressional-executive agreement that is accepted by the U.S. Congress and accepted
in the United States by the President. Upon endorsement of NAFTA, the tariffs that are levied by the
some three countries against each other either were done away with immediately or were phased out
over durations of up to about fifteen years (Shiozawa, 2007). The Limits on the total investments were
eliminated with the investors that are from any of the three countries that are treated in an equal
manner, currency freely changed at market rates, and job performance needs such as sustaining the
levels of export and also the trade balancing being removed. Trade in services is liberalized and fair
treatment is expected for the service providers and also professionals in every country.
Disadvantages of NAFTA and EU
Some of the main disadvantages include the fact that FTAs are only advantageous when the
negotiations are between other trading partners. This therefore implies that the other countries such as
Australia are restricted from pursuing their interests. It therefore has restricted other nations from
negotiating with them as they end up not benefitting economically. They should come up with ways to
encourage other nations to join in the trade negotiation as they would end up benefiting even more if
the do away with the restrictive policies.
They also have complicated policies which have been put in place with the aim of blocking the
third world countries from bringing their products either directly or indirectly through other parties
(Samuelson, 2001). They do this by ensuring that the transaction costs are very high so that they will
not see the need to engage in the business as the high tariffs will have contributed to very low profits
besides the time and energy consumed. The rules are enforced strictly and the laws which are made
various treaties made to ensure that they are not condemned for enforcement of the policies. For any
business to take place there are certain standards that must be meet certain standards, there are also
various requirements for settling of various disputes that are likely to occur in a business arena.
Through their putting of restrictive rules is a way of undermining democracy. This is because a
business and especially an international business should not be inclined to any group of individuals.
NAFTA on the other hand discriminates the poor nations from promoting their economy. It is also
prejudice since they assume that the poorer countries do not have the ability to make quality products.
International policies are expected to promote harmony in the world and especially in this world of
globalization ((Bowen, Hollander, & Viane, 1998). It also means that there is poor governance among
the managers since they should have detected the problems in their policies and amended them.
Although many poor countries would want to form trade organizations, many would not want to
emulate NAFTA as they have not set a good example to the rest of the world irrespective of the success
they have so far.
NAFTA has also affected the job fields in that many jobs are closed leaving many job less. The
jobless are left to no alternatives thus in most situation in the desire to survive they engage in social
crimes such as stealing, promotion of prostitution among other social evils that lead to moral
degradation (Yeats, 2001). It has also proved to depress the wages for the already working groups thus
promoting poverty even for the workers due to the increase tariffs which forces the business
administrators offer poor wages so that they are also left with some profit margin. This therefore means
instead of formation of NAFTA basic raising the living standards of the affected group it is doing the
contrary and to worsen it favors corrosion of morals for the people leading to increased levels of
insecurity which also discourage investors to invest in the unstable nation which in turn destabilizes the
economy of the country (Krugman, & Obstfeld, 1999). The management of NAFTA should therefore
go through the policies again so that they amend the parts affecting the other interested nations and the
existing ones negatively.
They have also led to decreased rights to the citizens of the involved nations. They have instead
opted to give so much power to the governance of NAFTA, the strake holders and other involved stake
holders. It has therefore put a lot of considerations to the Western nations which have the privilege of
wealth and power over them and making them to be controlled by them so that they would find favor
from them. The therefore seem to lose their independence and rely on them even on basic thing
because they have been made to believe they have no quality products.
The common things between European Union and NAFTA are that they both aim at reducing the
barriers which exist between the two organizations and this is with the aim of promoting trade. The
only problem is that they do this so as to improve on the trade not with other groups but between them.
They achieve this by reducing tariffs in the goods they intend to trade and those that affect them both.
They have also ensured that politics have no hand in what they do to ensure that their decisions are not
affected by the political moves this have ensured stability for the two organizations (Bowen, Hollander,
& Viane, 1998). This means that the organizations are set to benefit the powerful nations of the world
and taking advantage of the third world nations since they get raw materials from them but they do not
want to accept their products.
In conclusion, it is important to realize that the most important reason for the formation of Free
Trade Agreements and the European Union is to ensure there is labialization in the business world and
especially among the involved nations (McKenzie, 1994). They have also been able to achieve since
the parties involved are few and belong in the same region. It is therefore easier to access them and
have the negotiations without problems and they have no desire of engaging in multilateral agreements
as the take long and difficult procedures in operating them. The organizations have also to ensure that
they have policies that will not only enhance economic growth but also strengthen the organizations
themselves. They should however come up with ways of liberalizing the trade sectors so that not only
the member parties to benefit but even those outside should have an influence. They should also work
to improve on the policies that promote democracy for all.