Comparative analysis of the trade arrangements systems followed by NAFTA & European Union
The 1994 North American Free Trade Agreement (NAFTA), and its two side agreements on the environment and labour, came with a large number and wide variety of dispute settlement mechanisms, of both a very traditional and highly innovative kind-illustrate and explain.
Different countries around the world have trade agreements with other countries. The most important and influential of all trading agreements is the North America Free Trade Agreement (NAFTA). The members of NAFTA are the US, Canada, and Mexico and it is sometimes referred to as a trilateral trading block. The reason why NAFTA is so important is that between the three of these members there is the largest GDP of any trading block in the world.
The 1994 North American Free Trade Agreement (NAFTA), and its two side agreements on the environment and labour, came with a large number and wide variety of dispute settlement mechanisms, of both a very traditional and highly innovative kind. Along with many new trilateral institutions and processes for dispute avoidance and management, the NAFTA regime brought five major formal dispute settlement mechanisms.
How NAFTA Works
The North America Free Trade Agreement has been in place since 1994. It was a controversial idea, but the plan was that such a move would not only promote prosperity but also bring the countries closer together. Since the time of its introduction there has been an additional two agreements added to it; the North American Agreement for Economic Cooperation (NAAEC) and the North American Agreement for Labor Cooperation (NAALC). All these different agreements share the same basic motive which is to make it easier for business to flourish within North America.
Before NAFTA there were many complaints about the rate of tariffs between different countries in North America. This made moving products from one country to another less attractive because there would be less profit to be made. By removing many of these tariffs it encouraged businesses to sell their goods and services across the whole of North America. This is good news because it greatly increases the number of potential customers that any business will have.
The Impact of NAFTA
Even those people who were initially critical of the North America Free Trade Agreement have needed to admit that it has been successful. The increase in trade between the US and Mexico has risen dramatically in recent years as a result of this legislation. By removing high costs associated with moving products between countries a lot of businesses have been able to expand their operations. It is great for the consumer because it means that they now have access to a lot more products that are available at reasonable prices. As part of the NAFTA agreement it is now necessary to provide labels on ship goods that appear in English, Spanish, and French. This makes it a lot easier for those people dealing with the goods who don’t have English as their first language.
As well of the great successes of NAFTA there have also been some less welcome results. The rise in the number of illegal immigrants coming to the US from Mexico has been blamed on this legislation. This sudden influx of undocumented workers has led to raising concerns in some parts of the US. It has become a highly politicized topic and emotions can run high about what should be done about it.
EU compared to NAFTA Similarities and Differences:
There are both similarities and differences between NAFTA and the European Union. The main similarity is that both of these agreements involve a single approach to trade between the countries. The way that the agreements differ is that most of the European Union now has a single currency.
Only Similarities between NAFTA and EU that I know is that you can ship packages or whatever without having to pay custom fee because like I said EU and NAFTA are completely two different associations and most of the EU states have free trade agreement between them like NAFTA nations.
Firstly in most EU nations the same currency (Euro’s) are in use, NAFTA (America, Canada and Mexico) Nations all have their own currency.
*Traveling between EU nations is visa free and without border controls (In Schengen Zone, except UK, and Ireland, both of them doesn’t belong into Schengen zone but they are doing Police and judicial cooperation’s with other Schengen zone nations) but Traveling between NAFTA Nations requires VISA.
*People who are from EU can immigrate to other EU state without needing permanent resident card. Only thing they need is to show that they have stable job and income. In NAFTA there is more bureaucracy and lots of paperwork and people need resident cards. At least when people from Mexico and trying to emigrate to US then people need Permanent residents card and when people from Canada and trying to move in US.
*EU has its own parliament, NAFTA doesn’t because it isn’t one Big Union, it is Free Trade Agreement not a Union. Also it has its own Central Bank, Court of Justice etc what NAFTA doesn’t have. Maybe North America has something similar when NAU (North American Union) is established in the future.
NAFTA Chapter 20 on General Dispute Settlement
The second pillar of the NAFTA regime’s dispute resolution repertoire is NAFTA’s Chapter 20 on general dispute settlement. It offers a process that starts with consultations and moves to formal panels if necessary. More precisely, the Chapter 20 process is “applicable to all disputes regarding the interpretation of application of the NAFTA” and “intended to resolve disputes by agreement, if at all possible” (NAFTA Secretariat 2004). The process begins with government-to-government consultations, can then proceed to a meeting of the ministerial level Free Trade Commission, and finally to the creation of a five-member arbitral panel. Chapter 20 has been used less frequently than Chapter 19. But on the whole Chapter 20 can be considered a success. Several difficult, politically charged cases have been resolved through consultations (for example uranium 1994, sugar 1995, tomatoes 1996, the Helms Burton Act against Cuba in 1996, and avocados in 1996-7). In nine years only
Three cases have had to be taken all the way to a formal panel – Mexico’s complaints against the United States over brooms and trucking, and US complaints against Canada’s poultry and dairy practices. From a legal standpoint, the decisions in all three cases are
Regarded as very high quality ones (Vega 2003).
NAFTA is governed by the Secretariats, located at the three countries. The Canadian secretariat is located in Ottawa, Mexican Secretariat in
Mexico City and United States Secretariat in Washington D C. A secretary who is appointed by the respective governments heads the secretariats.
1. While WTO pertains to the whole globe, NAFTA is just related to North American region.
2. NAFTA is a treaty that has been signed among the US, Canada and Mexico. The WTO is an international organization, which aims at supervising and liberalizing capital trade in the international level.
3. NAFTA came into force on January one, 1994. The World Trade Organization was formed on January one, 1995.
4. The World Trade Organization is governed by a ministerial conference, which meets every two years. NAFTA is governed by the Secretariats, located at the three countries.
Comparing the EU and NAFTA:
Comparing the EU and NAFTA is an obvious exercise in a world in which nation-states are supposed to be obsolete. Both are large regional systems bringing together sovereign nation states.
As such, they might be considered the wave of the future. Whether that is true or not remains to be seen. What is more than apparent is how different the two are. The EU was one of several transnational or international structures established during or after World War II.
Despite the aspirations of Monnet or Schuman, the most important reason for the establishment of the European Coal and Steel Community (ECSC) was to find a means of marrying France and Germany and removing barriers to economic reconstruction. Creation of the European Economic Community (EEC) and EURATOM, following the European Defense Community debacle, reflected a saw-off between its two most important member-states, France and Germany. Established at a time when recovery was complete and much of Europe was
approaching full employment, the EEC rapidly succeeded in establishing both a free trade area and customs union in the 1960s. Although aspirations to move beyond intergovernmentalism and introduce qualified majority voting in the Council of Ministers were thwarted by French President Charles de Gaulle, the EU launched the Common Agricultural Policy (CAP), and began developing its competition policy in the 1960s. After General de Gaulle resigned in 1969, the way was open for British membership and the first enlargements, which included not only the UK but also Denmark and Ireland. In the 1970s, the European Communities (later the European Community, EC) established the Common Fisheries Policy (CFP), used ECSC instruments to tackle over-capacity in the steel industry and built a fabric of competition law to supplement its agricultural support policies. Direct election to the European Parliament was also agreed upon and implemented. At the same time, the European Court of Justice built up a body of case law that constitutionalized the treaties and established the supremacy of European over national law. In the 1980s, the EU moved forward again, implementing qualified voting in the Council of Ministers, proceeding with the Single Market, and agreeing to contemplate both monetary and closer political union. Well before NAFTA was contemplated or established, the EU was becoming an increasingly complex multilevel system in which decision-making competence in several policy areas had been ransferred from national capitals to Brussels.
NAFTA’s story is different. Spared the misfortune of large scale wars, North Americans had no need to marry historic enemies to secure peace. Instead, NAFTA=s origins reflect the separate needs of Canada and Mexico to deal with a larger, wealthier, and far more powerful neighbor, the United States, and in particular, to counter protectionist tendencies and ensure continued access to its markets. For Canada, seeking a free trade agreement with the United States reflected the culmination of an historic debate between economic nationalists, who hoped to enhance and protect domestic industries, and continent lists, who believed that economic salvation required closer relationships with their neighbor to the south. Historically, Liberals had been more inclined toward continentalism and the Progressive Conservatives more inclined toward economic nationalism.
By the 1980s, the positions had reversed: Progressive Conservatives (The Government from 1984) and the Macdonald Royal Commission (Royal Commission on the Economic Union and Development Prospects for Canada, 1985) advocated free trade, while New Democrats and some Liberals opposed them. The 1988 election was fought on the issue. Progressive Conservatives under Brian Mulroney won a second majority and negotiated the Canada-US Free Trade Agreement, which was broadened in 1993 to include Mexico.
NAFTA’s provisions are well known. The treaty opened up trade in goods not governed by other treaties, such as automobiles, which are regulated by the Auto Pact. In contrast to the EU’s founding treaty, neither the Canada-U.S. agreement nor NAFTA hinted at anything other than a free trade area. Although there are voices in Canada who believe that Canada should adopt the U.S. dollar and think that Canada will eventually join the United States, the North American Free Trade Agreement contains no aspirations for a customs or monetary union, let alone closer political union. Instead, NAFTA has been what it was advertised to be: a free trade agreement with limited provision for the movement of people – albeit one with important consequences for the ability of federal and provincial governments to implement regulatory policies which might reflect a free flow of goods.2 We need not concern ourselves with a detailed history of either the Canada-U.S. Free Trade Agreement or the North American Free Trade Agreement that superceded it. More important is to recognize what NAFTA is and is not and how it differs from the EU. Table 1 compares the EU and NAFTA. A quick glance at the chart should convince anyone that differences between these two regional systems more than outweigh superficial multilevel system of governance. Member-states pool their sovereignties in an increasingly wide range of policy areas and participate in complex, and in some respects similarities. The EU is a complex and, at the moment, troubled, cumbersome intergovernmental and transnational structures of governance. There are larger and smaller member-states. However, even though some have played more preeminent roles than others, no one member-state is in a position to dominate others. Decisions are made in different ways. The normal or official legislative process is from the Commission to Council of Ministers and European Parliament. However, the European Council has assumed an increasingly important role in cutting through the most important deadlocks. Less visible intergovernmental structures, such as COREPER and Permanent Representations, underpin the Council of Ministers and play an important role in building consensus among member-states’ day-to-day decision-making. Also important are the European Court of Justice and the fabric of European law which member-state courts apply in their adjudication. Khosrow Fatemi and Dominick Salvatore (Eds.),
The North American Free Trade Agreement is different. NAFTA brings together Canada, the United States, and Mexico. All three are federations, but they are not equal in status or influence. The United States is superior to Canada and Mexico in population, the size and importance of its economy, and international status. NAFTA provides both Canada and Mexico with something that some policy-makers in each country thought vital: better, though hardly perfect, access to lucrative American markets. Its governance structures are barely visible: Three councils, an intergovernmental Free Trade Commission (FTC), a Council for Environmental Cooperation (CEC), and a Commission for Labor Cooperation (CLC), bring together cabinetlevel officials from time to time to deal with disputes and implement NAFTA provisions. These are staffed by small secretariats, and can decide by two-thirds vote. It is also possible to convene trade tribunals in the event of disputes.4 Even these appear to be sidelined when aggrievedinterests in the United States – e.g. softwood lumber interests – can press the United States Trade Representative and the Commerce Department to impose countervailing duties outside of NAFTA and WTO trade relationships. That said, NAFTA limits the ability of local, provincial or state, and federal governments in each country to regulate economic activity. This occurs not through direct prescriptions or prohibitions but because plaintiffs – typically business firms – in each country can ask courts in other countries to strike down regulations which may be deemed to interfere with trade or limit commercial activity. The extent to which this will inhibit health or environmental regulation remains to be seen. Comparisons between the EU and NAFTA are better undertaken within a larger universe of regional blocs or systems.
The EU vs. the NAFTA
The EU is the biggest free trade block in the world. Its economic success is unquestionable with countries queuing to become members. In response the USA promoted a free trade zone – NAFTA. It does not appear to have had the same success. Using the trade theories studied in class, can you explain why the success of the EU and the difficulties of NAFTA?
The real problem in the Nord American Free Trade Agreement is that there are 2 super powers EU and Canada and one developing country way behind the other two, this country is Mexico. Capital is the problem, technology is the problem, and these two countries create products very elaborated for Mexico. There is a lot of difference between the 2 nations that are developed countries and Mexico. In the Product Life Circle Theory, the product always comes out in the US and in Mexico always buy it more expensive, Mexico is trading a lot of things with the US for little so the US and Canada are innovating products and Mexico is buying them. The differences of culture is enormous the Canadians and the American share a lot in common like the language and their ancestors while Mexico is a 100 percent Latin Country.
The European Union is different; all the countries that created it were developed countries. The Union helped all the countries and more countries started to join it. The evolution is homogeneous while in the NAFTA is not. The capital of the countries is more similar between them, not the countries that are entering. There are not boundaries while in the frontier with Mexico and the US there is a wall.
In the Theory of Absolute Advantage and Comparative Advantage applies very well in the European Union, some countries are more specialized in on product and some aren’t even if they are very close in production they will specialized and make more of the product. These theories cannot be applied in the NAFTA because Mexico depends almost %100 in the US their imports are 90% from the US and their exports are 90% to the US. Even if Mexico has a lot of Raw Material and Oil, they are too small for the US and Canada. The NAFTA helped Big Enterprises come to Mexico witch created and is creating the ruin of medium and small enterprises.
The Factor Proportion Theory applies in both agreements. Mexico has a lot of land and hand labor not qualified and in the US is totally different. In the EU union especially the new countries that are joining it their land and hand labor are cheaper.
In conclusion, it can be said that dispute settlement in the NAFTA and compared to the European system is one of the most important issue in the world today.
The aim of this paper was to demonstrate – perhaps to the convinced – the utility of Canada-EU comparisons. That case has been made and there is little utility to concluding it with an extended list of possible comparisons. The agenda I have suggested is sufficient to keep students of Canadian and EU politics, and more generally students of multilevel systems of governance, busy for some time to come. What are not needed are further lists, but rather critical imagination.
• Alanis Ortega, Gustavo (2002), “Public Participation within NAFTA’s Environmental John Kirton, Associate Professor of Political Science and Principal Investigator,
EnviReform Project, University of Toronto
• Agreement: The Mexican Experience,” in John Kirton and Virginia Maclaren, eds., Linking Trade, Environment and Social Cohesion: NAFTA Experiences, Global Challenges (Ashgate: Aldershot), pp. 183-186.
• Vega, Gustavo (2003), “The Experience of NAFTA Dispute Settlement Mechanisms: Lessons for the FTAA,” Atelier ALENA, March 20.