The NAFTA and the EU: The Global Balance Name Institution Name Economic distance since World War II has decreased among countries because of the technological changes, but also because of the increased political cooperation among countries (Wallace, 1994, p…
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NAFTA was created as a counterbalance to the EU on the global scene, with the USA as its leader. NAFTA was an outgrowth of previous trade agreements and history between the USA, Canada and Mexico. Mexico and the USA announced the creation of NAFTA in 1990, and Canada joined a year later. NAFTA entered into force in 1994. It can be argued that its existence was almost inevitable due to the geographic proximity of the three countries and their political and economic history. The three countries are natural trading partners (Bilal, 2001). Thus, though they had other options, such as the US – Israel Free Trade Agreement, the Common Market of the South (MERCOSUR) for Mexico and US – Canada Free Trade Agreement (CUSFTA) for Canada, their geographic proximity and history made this agreement an attractive option. Mexico and the USA already had a history of migration flows from Mexico to the USA, and the USA was a major source of foreign direct investment (FDI) for Mexico (Hufbauer & Schott, 2005, p. 1 -2). The USA was also a largest source of FDI for Canada. According to Hufbauer & Schott (2005), Canada also saw a benefit in joining NAFTA so as not to lose any of the benefits from the 1989 CUSFTA. In short, Canada and Mexico saw and economic benefit in accessing the US markets (Wolinetz, 2003, p.4). Moreover, NAFTA was a result of increased economic interdependence as a result of globalization. According to Hufbauer and Schott (2005), US trade with Mexico and Canada increased drastically even before NAFTA was discussed as an option (p. 2). NAFTA only sped up the process. Chase (2009) argued that NAFTA and the EU arose out of the need of multinational companies for opened boundaries, which witnessed increasing scale of production and needed a cheap way to sell their products. Mexico for example benefitted because NAFTA enabled the then current government to open up the economy to the global markets in order to produce economic growth in the economy (Hufbauer & Schott, 2005, p. 3). Thus, it seems that NAFTA was a result of globalization and increased interdependence. Abbott (1999) argued that The NAFTA was also created to counterbalance the growing EU influence. The EU, which will be discussed later, has over the years become one of the influential global players, jeopardizing the US interests. However, the creation of NAFTA and its growing influence has jeopardized the EU interests. As a result, the EU has attempted to reduce the US influence by strengthening its ties with Mercosur and Mexico. NAFTA’s structure is small. It is composed of three councils, an intergovernmental Free Trade Commission (FTC), a Council for Environmental Cooperation (CEC), and a Commission for Labor Cooperation (CLC), which bring together cabinet level officials to deal with disputes and implement NAFTA provisions. Disputes can also be resolved in trade tribunals (Wolinetz, 2003, p. 4). But unlike the EU, NAFTA has no common macroeconomic policies or a common currency. NAFTA only limits the sovereignty of local and federal governments with regard to the labor and environmental laws, and other areas of economic policy, since companies can complain if they are discriminated against or if their activity is limited (Wolinetz, 2003, p. 4). Unlike NAFTA, the structures of the modern EU were created because of security reasons. After World War II, European democracies were in ruins and, under the leadership of the USA; the economic
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