The North American Free Trade Agreement (NAFTA) and the European Union (EU)
Trading blocs are imperative for the purpose of opening markets and boosting economic growth. Most of regions in the world have come together for the purpose of addressing issues of increasing trade. The North American Free Trade Agreement (NAFTA) forms quite an Integral part in the history of Mexico, Canada and United States. The government of United States, Canada and Mexico signed the agreement which led to the creation of trilateral trade in the region of North America. The agreement was implemented on January 1st 1994. The agreement was supposed to assist the three countries develop their economic interests while opening up the market. On the other hand, it created more employment for people since it encouraged establishment of small and medium enterprises.
Conversely, the European Union (EU) is a trading block that was formed by about 27 governments for economic purposes. It began in 1951 with six countries. Exchange and control of sources of energy and steel was the main reason why these countries came together. This was important since Europe was undergoing an industrial revolution and therefore the two resources were vital. A common currency is used by 27 members of the union. It is a trading bloc that is not only concerned with economic factors but also military, humanitarian aid, foreign relations and political issues.
Comparison between NAFTA and the EU
In comparison, the NAFTA and European Union are both major trading blocs. They were established for the purpose of encouraging trading between countries while enlarging markets. Secondly, the trading blocs were established to facilitate free flow of citizens from one country to another without any restriction. Thirdly, the two are related in that they have both been actively involved in the reduction of interest rates and exchange rates. Import duties have been reduced to facilitate favorable trade. Finally, they have both succeeded through the use of a common currency that has been imperative in ensuring there is stability in price of goods.
There are however a number of differences between the two. Firstly, their geographical cover is different. While NAFTA only serves three countries, EU has about twenty seven members. Secondly, there is a common bank financial institution (European Central Bank) that is used to control the economy of Europe while NAFTA has no such arrangement. Each of the three countries has its own financial institutions which determine issues of price stability. Finally, while NAFTA deals with issues of economic development of the member countries, EU is concerned also with political, foreign relations, humanitarian aid and military advancement.
European Monetary Union's use of a Common Currency and how it affects the EU Trading Arrangement
The European Union is unique in the sense that it has access to a single currency. It is a battle that was won in 1993 when all members agreed to a treaty requiring the use of one currency. The main aim was to ensure price stability within the market. The use of different currencies was making some countries pay more for goods than others. It was also resulting in price instabilities affecting the consumers most. There was a need to ensure equality of prices within the European Union markets and this prompted the use of common currency. Secondly, it allowed people to freely move from one country to another. A common currency has helped in cushioning countries from high interest rates.
This is because of the use of a single financial institution which control issues of exchange rates. All the transactions and prices are controlled by European Central Bank (ECB). The use of the common currency was also used to achieve political stability and integration of all the member countries. It was one of the ways to indicate the members’ commitment to the realization of a common goal and equality for all.
References
Carbaugh, R. (2009). International Economics 12th edition Mason,. Ohio: Cengage Learning.
Gary, H., & Jeffrey, S. (2005). NAFTA Revisited: Achievements and Challenges Washington, D.C.: Institute for International Economics.
