Economic integration in NAFTA and EU: A comparative analysis

Term Paper, 2005

24 Pages, Grade: 1,3


Table of Contents

I. Introduction

II. A Comparative Analysis of Economic Integration in NAFTA and the EU
II.1. The European Union
II.3. Evaluation and Assessment of integration in NAFTA and the EU
II.4. The performance of the less developed members in NAFTA and EU
II.5. Positive Integration in NAFTA and EU?

III. Conclusion

IV. Sources

I. Introduction

When the Second World War was over, the Western European nations knew that another such catastrophe would have to be prevented. The experience of two devastating world wars incited by Germany as well as what had been seen as a communist menace in the Eastern European states and the far from good economic situation let the leaders of France, Belgium, the Netherlands, Italy, Germany and Luxembourg reconsider the shape and arrangement of the old continent. In the new world, on the other hand, the economic and political dominance of the United States in the Americas since the late 1800s seemed to prevent the local governments from inventing regional arrangements.

Given the different starting points, it is no wonder that the regional arrangements NAFTA and EU differ greatly. Already their claims are far from being similar. Indeed they both share an approach to tighten economic ties and to make trade among the member states easier. But where NAFTA can be seen as a purely economic alliance, the European Union initially had goals reaching beyond that.

On the following pages I will describe where the differences between the two regional economic agreements lie. First I will give an overview of NAFTA` s and the EU` s most important institutions and their structure. After that follows an analysis of indicators of their economic integration that will allow us to assess and compare them. In the following chapter I will present my opinion on how the poorer regions of both agreements, namely the so-called cohesion countries in the European Union and Mexico in NAFTA, have profited from the respective integration drives. Last but not least, I will classify the degree of integration and address the issue of positive and negative integration in NAFTA and EU.

Before I start, a brief note on the sources. Economic realities change. Recessions, currency devaluations, terrorist attacks (such as on 9/11) and countless other events may distort or change existing patterns and possibly devalue older sources. But to show the longer tendencies, I consider it sufficient and sometimes even necessary to rely on studies that might be a couple of years old. The same is true for the figures I present. Not only is it sometimes hard to get the latest data, but sometimes it proves quite difficult to get any at all, simply because they have not been officially published.

II. A Comparative Analysis of Economic Integration in NAFTA and the EU

II.1. The European Union

Integration in the European Union (EU) goes and always went far beyond economic goals. It can be seen as a political, economic, and cultural project. Major motivation was the hope for a common and peaceful coexistence of the war-torn nations after the defeat of Nazi-Germany. The weaving of the continent “into a fabric of economic interdependence”[1] was an important step towards a European Union, next to political measures already taken and still on the way. The institutional and organizational framework with significance for economic integration in Europe will be subject to discussion in the following.

The first step or predecessor of the European Union was the European Coal and Steel Community (ECSC) based on the Treaty of Paris from 1951.[2] With the signing of the Treaty of Rome in March 1957, the legal framework for the “foundations of an ever closing union among the peoples of Europe”[3] was laid and the European Economic Community (EEC) was founded. Then consisting of Belgium, France, Italy, Luxembourg, Germany, and the Netherlands, it had subsequently been expanded and after the last enlargements in 2004 now encompasses 25 countries. The Treaty of Rome “reflects the intention of its signatories to achieve much deeper economic integration than a customs union would.”[4]

After the Treaty of Rome, more steps had been undertaken to further integrate the EU economically. The EEC had already established a customs union with free mobility of factors of production. Still, there were many non-tariff barriers that had to be overcome. The Single European Act of 1986 aimed at changing this reality. Its goal was the formation of an internal market and the removal of trade barriers left, and had an important influence on the “economic structure of the countries involved”[5]. The next major step towards European integration took place in 1993: The Maastricht Treaty, signed in 1992, had been implemented and demanded an Economic and Monetary Union (EMU) by 1999. By January 1, 1999, the participating countries fixed their exchange rates to the Euro. In 2002, the national currencies were replaced by the Euro notes and coins. Participation is only possible for the countries meeting the five convergence criteria defined in the Maastricht Treaty. Greece, for example, also willing to enter the EMU was unable to meet the criteria and thus was not allowed to join.[6]

There were other important features in the Maastricht Treaty: its provision for a common foreign and security policy further strengthened European integration and was a step towards political union.[7] The Amsterdam Treaty from 1997, finally aims at further improving integration, at making Europe more influential in world politics and at preparing the EU for new member states.

It takes more to integrate economies than the invisible hand of the market. The participating nations need instruments and institutions that guide them in the process. In the European Union, the most important instrument of integration is its supranational organization. The Union is sovereign towards its member nations and its institutions have legislative power and are able to enforce this legislation.[8] European integration thus created an autonomous legal order which has the right to curtail sovereignty of its members.

Its important institutions are the European Commission, the Council of Ministers, the European Parliament, the European Court of Justice, the European Court of Auditors, and the European Central Bank. All but the Central Bank, which came into existence with the introduction of the European Monetary Union, were introduced in Article 7 of the Treaty Establishing the European Community.[9]

The Court of Justice helped “rapid integration by eliminating barriers to free trade and other restrictions”[10]. Also dubbed the Supreme Court of the EU[11], it plays a central role in the integration process. Jörg Dunker even names it its motor.[12] It aims at making sure that the directives of the European Union are implemented and is alone responsible for the interpretation and application of the common law. Practically, the Commission can via the Court take action against a country that committed violation of the treaties establishing the EEC / EU.[13]

As the European Union is supposed to be more than a loose economic alliance, there are efforts to reduce disparities among the countries and regions, as stated in Article 130a-130e of the Maastricht Treaty[14]. Regional policies play an integral role in providing social cohesion. Before the ratification of the Maastricht treaty, however, social cohesion was not part of the Treaty of Rome. Nevertheless, there have been approaches to reduce differences in the standards of living of the members. Two instruments that were included in the Treaty of Rome were the European Investment Bank and the European Social Fund. The first was created to support loans to “development enterprises”, the latter was part of the EU` s structural funds.[15] In 1975, with the European Regional Development Fund the first community-level institution for regional policy had been created and “provided transfers on the basis of national quotas to co-finance national regional policies.”[16]

The Single European Act (1986) included provisions for social and economic cohesion and led to the creation of regional policies to help develop regions and reduce disparities within the Union. The so-called Delors-I Plan, in effect from 1989-1993, in fact demanded social cohesion, as did Delors-II (1994-1999, now already under the Maastricht Treaty). Both increased the budgets for structural funds (Delors I up to 0,3% and Delors II up to 0,46% of the EU GDP).[17] With the Maastricht Treaty the Cohesion Fund and Structural Funds in their present form were introduced as well. The former now consists of the European Regional Development Fund, the European Social Fund, the Financial Instrument for Fisheries Guidance, and the Guidance Section of the European Agricultural Guidance and Guarantee Fund.[18] Regional policy of the European Union originally had five priority objectives such as development of regions lagging behind or labour market problems. To sum it up, the “central task of EU regional policy is to lay down common rules for structural aid in the Member states and to co-finance policy measures.”[19] For the period 2000-2006, the formerly five objectives are being reduced to three, which are (1) the support of development in areas lagging behind (with a GDP below 75% of the EU average), (2) support of economic and social conversion in areas facing structural difficulties and (3) the modernisation of training (education) systems and the promotion of employment.[20]

The Cohesion fund has been created to assist EU-member countries whose GNP is less than 90% of the Union` s average.[21] The classical so-called cohesion countries until the Eastern enlargement had been Greece, Ireland, Portugal, and Spain. Since the last enlargement they include the 10 new member states. The grants from the Cohesion fund are given to the governments of the recipient, whereas the grants from the Structural funds are distributed to the respective regions.[22]


[1] Hansen, Jorgen Drud and Philipp J.H. Schröder: “Economic Integration: Setting the Stage”, 2001, p. 1

[2] Hansen and Schröder 2001, p. 4

[3] Consolidated Version of the Treaty Establishing the European Community:, Preamble

[4] Lawrence, Robert Z.: Regionalism, Multilateralism, and Deeper Integration, 1996, p. 44

[5] Hansen and Schröder 2001, p. 6

[6] Hansen, Jorgen Drud and Finn Olesen: “Monetary Integration: Old Issues – New Solutions“, 2001, p. 176

[7] Fischer, Thomas C.: The United States, the European Union and the `Globalization` of World Trade. Allies or Adversaries?, 2000, p. 98

[8] Fischer 2000, p. 81

[9] Consolidated Version of the Treaty Establishing the European Community, Art. 7

[10] Gianaris, Nicholas V.: The North American Free Trade Agreement and the European Union, 1998, p. 51

[11] Gianaris 1998, p. 51

[12] Dunker, Jörg: Regionale Integration im System des liberalisierten Welthandels. EG und NAFTA im Vergleich, 2002, p. 99

[13] Consolidated Version of the Treaty Establishing the European Community, Art. 226

[14] Maastricht Treaty on European Union:, Art. 130

[15] Fischer 2000, p. 109

[16] Tondl, Gabriele : “Regional Policy”, 2001, p. 180

[17] Pastor, Robert A.: Toward A North American Community. Lessons from the Old World for the New, 2001, p. 45

[18] Regional Policy – Inforegio. The Structural Funds:

[19] Tondl 2001, p. 182

[20] Regional Policy – Inforegio. Working for the regions:

[21] Regional Policy – Inforegio. The Cohesion Fund: What is it?

[22] Pastor 2001, p. 45-47

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Economic integration in NAFTA and EU: A comparative analysis
LMU Munich
Regionalisierung der internationalen Handelsordnung?
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ISBN (eBook)
ISBN (Book)
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Economic, NAFTA, Regionalisierung, Handelsordnung
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M.A. Wolf Seiler (Author), 2005, Economic integration in NAFTA and EU: A comparative analysis, Munich, GRIN Verlag,


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