My E-books:

1.("NAFTA and The European Union Compared" AND "Dr. Olga Lazin")

Emerging World Trade Blocs: The North American Free

Trade Area and the European Union Compared
By

Olga M. Lazin, UCLA

STATISTICAL ANALYSIS

Let us compare for the early 1990s:

(a) the 15 countries comprised in the European Union (data for which here
include three countries that are to join in January 1995),

(b) the six Eastern European countries likely to join the European Union in the
long term under the Europe Agreement,(1)

(c) the EU constituencies; 27 countries to date

(d) EU and NAFTA countries compared,

(d) major world trading blocs, especially Mercosur which is being courted by
both NAFTA and EU, and

(f) the NAFTA schedule for managing the opening of duty-free trade by item for
each of the three countries.

Data on the major trade blocs are included in order to show the context in which
NAFTA and EU discuss expansion. The Europe Agreement to unite the continent
east and west was signed on October 5, 1992, at Luxembourg; and the EU's
negotiations to develop a special relationship with Mercosur have acquired
importance by mid-1994 as Mercosur debates how closely to try to relate to
NAFTA.

Comparison is presented in five tables. Tables 1, 2, and 3 cover population, GNP,

GNP/C, and export share in GNP for the EU, Eastern Europe, and NAFTA. Table

1
4 covers the same data for major trade blocs. Table 5 shows the relative
importance of the major trade blocs, using the USA as reference point. Table 6
presents the current situation of economic blocs as through statistics for six
countries, Japan standing as its own economic bloc.

Table 1 allows us to examine the ranges in country size for population. Reunited
Germany has the largest population, 81 million. Italy and the U.K. follow as the
second and third largest countries, virtually tied at 58 million persons. Germany's
population is 207 times larger than the smallest country--Luxembourg has only
389,000 persons. In terms of GNP, Germany is 134 higher than that of
Luxembourg

Given such disparities in size, is it "fair" that the EU member countries have
disproportionate voting rights which are weighted in favor of small countries?
(For shares of voting rights, see Appendix A.) One good argument for such
weighting is that Luxembourg has the highest GNP/C of EU's (US$ 35,260) and
the highest export share in GNP (94%). Spain has a larger population (39 million)
but has EU's lowest export share in GNP (17%). Such complexities explain why
weighted voting rights are not as arbitrary as first glance might have us believe. In
any case big countries have enough votes that it takes the votes of many small
countries to reach the present blocking minority of 23 votes, a total which once
the EU reaches 15 countries will be 26 votes. (2)

Table 2 shows ranges in size for the six countries of Eastern Europe seeking to
join the EU. Poland has the highest GNP (US$ 75 billion), much higher than that
of EU member Ireland (US$ 42 billion). Unfortunately Poland is weak in exports,
which amount to 19% of its GNP. Hungary's advantage is due to its earlier
leadership among the former communist countries in carrying out economic
reform, its GNP/C being 54% higher than that of Poland.

The relationship of Poland to "smaller" countries is interesting. Although Poland

has 4 times the population of Bulgaria's 9 million, Poland has the lowest export
share of GNP. Bulgaria has the second largest export share in GNP (45), after the
Czech Republic, which leads both in export share in GNP (58) and also in GNP/C
(US$ 2,440) as compared to the rest of the Eastern European countries.

With regard to the two poorest countries seeking to join the EU, the poor
economic performance of Romania is noteworthy. The Romanian GNP is hardly
double that of the Slovak Republic (US$ 10 billion), yet the two countries are
equal in GNP export share (28%). Romania's trade with Eastern Europe collapsed

2
in 1991 along with the COMECON trading organization. Subsequent growth in
trade with the West has been slow, and current-account deficits of more than US$
billion have been recorded in each of the last four years. In terms of population,
Romania is 4 times larger than that of the Slovak Republic (5.3 million). The
legacy of a high-inflation environment and modest growth accounts for the
Romanian currency's very small purchasing power. Despite all theses
shortcomings Romania became a full member of EU in ten years, that is
December 1st, 2007.

The Slovak Republic with its small population and economy calls our attention.
How can it hope to compete in an expended EU? Although its population is only
5 million and its GNP is only US$ 10 billion, Slovakia has a relatively high level
of export in GNP, 60% higher than the larger Romania.

Given the above disparities, interests within the EU have been divided into five
"constituencies." (3) (See Chart 1.) The "Core" constituency is France and
Germany (which founded in 1951 the European Coal and Steel Community to
rebuild war-torn Western Europe). To this core are appended Belgium, Holland,
and Luxembourg, too close geographically and too small economically to avoid
being drawn into the orbit of power.

The second EU constituency is made of the "free traders" Britain and Denmark
(both of which joined the EU in the early 1970s). Britain leads the way to open a
common market of goods, services, capital, and people while at the same time
trying to prevent the rise in Europe of any singly powerful country.

The EU third constituency involves the poorer, newly democratic members

admitted in 1980s (Greece, 1981; Portugal and Spain, 1986), each seeking to
modernize their economies in order to guarantee against a resurgence of any
authoritarian rule. This expansion widened the gap between richer and poorer
countries, the latter including Ireland and to some extent Italy.

The fourth constituency involves Eastern Europe, which freed itself from Russian
rule after 1989. It sees admission to the EU, proposed for the year 2000 by
Germany, as guarantee against the resurgence of Russian authority in the region.

The fifth EU constituency involves the European Free Trade Association

(Austria, Finland, Norway, Sweden), which has realized, except for Norway, that
it must not be left out of the EU as it expands to include even Eastern Europe.
Indeed Austria may move directly into the Core.

3
Given the divergent interests of these five constituencies, two models offer future
direction to solve the problem of disunity within unity. The British model, which
seeks to give more or less equal weight to, the concentric circles depicted in Chart
1, thus encourage cooperative diversity; and the German-French model, which
seeks to move forward with monetary union and unified foreign policy focused
on the center circle in Chart 1. The idea that Britain may resist France and
Germany by refusing to join the EU monetary union has prompted The
Economist to write:

If Britain stays out, only to change its mind later {as it did about the EU], it
leaders may seem as silly as Churchill now seems, for this comment on the
founding of the European Coal and Steel Community 43 years ago: 'I love France
and Belgium but we must not allow ourselves to be pulled down to that level." (4)

Turning now to a comparison of the EU and NAFTA, several factors emerge. The
population of the two trade blocks is about the same (363.3 million for NAFTA,
345.0 million for the 12 EU countries, and 368.8 for the 15 countries in 1992).
With regard to economic differences, Germany emerges as having the biggest
sheer economic power, followed by France and Italy within the EU.

Noticeable is that the USA has the highest GNP among all countries (US$ 5.9
trillion) and the highest GNP/C within NAFTA (US$ 23,120).

Comparing the countries with lowest export share of GNP in each unit, NAFTA's
Mexico with only 14% has much less than the EU's Greece, which stands at 23%.
Romania and the Slovak Republic have twice Mexico's export share in GNP.

With regard to the power of population and GNP, the index in Table 5 is based on
the fact that the most important country is the USA, which equals 100. while
Mexico has one-third of the U.S. population, but only 5% of GNP.

Table 5 shows why Japan is often seen as the economic "enemy" of both NAFTA
and the EU, its power being concentrated in one county which has established a
web of trade dependency worldwide. Its GNP/C is 21% higher than that of the
USA.

Japan's accumulation of world trade capital is one of the reasons why so many
other countries are trying to compete globally by implicitly forming trade blocks.
NAFTA gives the USA, Canada and Mexico the possibility of expanding
international and international trade at Japan's expense.

4
The USA dwarfs most of the Western hemisphere in terms of GNP, except for
Canada, which reaches 84.3% of the U.S. total. (See Table 5.) Although the
European Union is 48% larger in population than the USA, its GNP/C is only
89% of the U.S. amount.

In establishing itself as FTA linchpin in the Americas, (5) Mexico has done so in
spite of the fact that it has only one-third of the U.S. population, 5% of the U.S.
GNP, and 15.3% of the U.S. GNP/C at the same time, however the NAFTA
framework enhances Mexico's tremendously as U.S. business investment has
arrived with new impetus beginning in 1994, especially after the national "defeat"
of the Chiapas rebels in August at ballot boxes almost everywhere in Mexico.

In relation to the USA, Mexico's GNP/C exceeds by 3.5% that of Mercosur's

12.8% share of the USA's GNP/C, while Germany, with about the same
population as Mexico, has 96% of U.S. GNP/C, raising the average for the EU to
80% of the same figure.

To further this comparison, let us note the fact that since 1994 the New York
Times (NYT) is carrying a regular comparison of the NAFTA-EU-Japan
economic situation for competition (See Table 6.) To represent the EU, the NYT
gives Britain and Germany; to represent NAFTA, it gives all three partners; to
represent global competition, it gives Japan.

The bottom line for global competition is shown in the 1993 manufacturing wage
gap given in Table 7. With five leading countries of Western Europe trying to
compete under a burden of hourly scale averaging nearly US$ 21, Japan and the
United States nearly tied in the US$ 16 hourly range, and the Asian "tigers"
(Taiwan, Singapore, South Korea, and Hong Kong) averaging about US$ 5
hourly, two facts are clear. Mexico with its US$ 2.41 hourly manufacturing
average is the attractive partner wherein factories can be established in the
Western Hemisphere. Eastern Europe with its US$ .90 is the equivalent area of
the future for the European Union.

Although Germany is moving important manufacturing funds into Romania, for

example, the EU has yet to formally bring Eastern Europe into a formal
relationship like that enjoyed by Mexico with NAFTA. Eastern Europe as a whole
(except for the Czech Republic) awaits the opening of it economies, which remain
largely non-market as is shown in Appendix B.

The NAFTA model for opening its three countries over 15 years provides a much
easier process than that faced by Eastern Europe of having to integrate into the

5
EU on a complete basis and mostly all at once. The effect of NAFTA integration
on Mexico, the USA and Canada is shown in Table 8, which divides the process
into the following time frames for elimination of tariffs: immediately as of
January 1, 1994, and within 5, 10 years, and 15 years.

With regard to immediate action by Mexico, it eliminated duties on all U.S. and
Canadian products not made in Mexico, that is on 43 percent of its purchases in
those two countries. Although most of Mexico’s purchases seemingly come from
the USA (63.4 percent in 1992) and little from Canada (1.0 percent), the reality is
that much of the Canada-Mexico trade is lost statistically when it passes through
the USA where it becomes incorporated into U.S. trade data.

The USA took immediate action to eliminate duties on nearly 50 percent of

Mexican imports and Canada 19 percent of Mexican imports. Canada’s actions
involved a complete opening to Mexican textiles (including thread, cloth, and
clothing), which in 1992 reached about 17 million dollars in value. (Mexican
textile exports to the USA were 56 times greater.)

CONCLUSION

NAFTA and the EU differ greatly in three major ways. The EU goes beyond
NAFTA's trading plan to include free movement of citizens as workers and
students; and EU seeks eventual unification of such potentially controversial
areas as currency, foreign policy, and military coordination.

The second difference is that NAFTA has the trading edge to expand beyond
Mexico into Latin America. Not only do the USA and Mexico have large trade
experience with the region that dwarfs that of the EU, but Mexico has made the
many agreements that at once make expanded trade possible as well as require it
to make multilateral sense of its many bilateral agreements. Canada has far to go
in developing trade beyond the USA, and both countries face stiff competition
from Japan. Under Mexico's leadership in bringing about the integration of the
Americas, however, NAFTA seems well positioned to compete with the EU as it
takes its first serious steps to develop relations with Mercosur.

The third major difference is that the "core" for NAFTA is the USA, for EU it is
two countries. With Mitterrand’s term coming to an end in France and Jacque
Delors not only retiring as the unifying head of the European Commission but
declining to be the front-runner to replace Mitterrand as president of France, the
question is whether or not Germany can count on either a dynamic concept of the
EU or France as traditional ally as it seeks ever greater EU unity on all fronts.

6
 Sumario de provisiones delTratado de Libre Comercio de America del Norte
(TLC) y la UniónEuropea (UE)
TLC UE
Criterios transnacionalespara crear,
Un mercado de comercio
Metas paso a paso, una unión política,
de bienes
económicay de población.
El Consejo de Ministros(el
Cada miembro establecesu principal órgano de toma de
Actividad propia politico externa decisiones con representaciónde
sujeta a negociaciones. todos los paises) toma decisiones
aplicable.s a todos los miembros.
Los miembros han establecido una
unidad monetaria común (el ECU)
pero coda paísmantiene aún su
Cada miembro tienesu
Moneda propia moneda. Bajo el Tratado de
propia moneda.
MaastricL, seprogramó que el ECU
se volvlera la única unidad
moneuriapara 1999
Los miembros se unieron en un
sólo mercado a partir del 1 de enero
de 1993. Capital,bienes y servicios
Cada paLçconserve sus
circulan entre los paises de la UE.
Aranceles propias regulaciones
Existe el compromiso para abolir
arancelaria.
los controles de migración interna,
pero algunospaises han pospuesto
su cumplimiento.
Autoriza a camionesy
Se establecióuna política común
cargueros comunes para
para un bloque sin fronteras y la
circular entre paises. (El
apertureto total de las rutas de
Transporte tráfico camioneroen
transporte, excepto el tráfico
cruzará la frontera
camionero,que está prohibido Los
mexicana libremente para
Alpes suizos y austríacos.
1999.)
Los trabajadorespueden moverse
Los trabajadoresno están
Empleo libremente entre los paises
incluidos.
miembros.
MigraciónyCiU Sólo profesionistas,persona Los ciudadanos delos paises de la
adanía de negocios e UE tienen garantizada la libertad de
inversionistas aenen el movimiento y residencia.Los

7
 ciudadanos votan par el Parlamento
Europeo en su lugar de
derecho de trabajar en residenciasin importer su
losestados miembros. ciudadanía. Están siendo
introducidos pasaportesde color
tinto en to da la UE.
Acuerdos de
Los acuerdos de comercio son
comerciocon otros
No cubiertos. firmados par la Unión, no por
países no
países individuales.
mlembros
Los miembros estáncomprometidos
con una política externa común,
Políticaexterna No cubierta.
pero pocuspaises buscan en
realidad su cabal cumplimiento.
Inflacióny
Los pulses miembrosdeben
administrac ión No incluidas.
adherirse a los límites máximos.
macroeconómica
Los miembros acordaronestablecer
estrategias comunes para hacer a
Competencia y
No cubiertas. todos Los países
calldad
igualmentecompetitivos. Las
normac de calidad.son mínimac.
Los miembros seadhieren a
Protecciónal
No cubierta. regulaciones estándar que están
consumidor
siendo establecidas.
Se aplican criteriosestándar a todos
Politica social No cobierta. los paises (por ejemplo, la
seguridad social).
Establece una pauta estándar para
todos los miembros. Se otorgan
privilegios especialespara ayudar
Legislacion de Cubre sóloel Tratado de
en las area económicamente
impuestos Doble Impuesto.
necesitadas tale. como Españay
Portugal. Finlandia y Austria se
beneficiarán al volverse miembros.
Los participantesestán
Los miembros hanestablecido una
estableciendo estándares
Medio ambiente política externa de estándares y
comunes en Los tratados
medidas.
Iaterales

8
 Los miembroshan establecido un
Salud No cubierta.
programa común
Aunque el TLC esuna Establece programasde intercambio
unión economica, ha para estudiante de educación
surgido un acuerdo lateral, superior y profesoresunlversitarios.
Educación
pero no al mismonivel que El programa ERASMUS apoya a
para el programa los estudiantes que estudienhaste
ERASMUS. un afio en otro pais de la UE.
Los miembros buscandesarrollar
una política común de seguridad.
Defensa No cobierta. Se ha establecidoun sistema militar
común, pero coda pais conserve su
propia milicia.

1. Indicadores de poblacion, produccion y exportacionesde Union Europea 1

Produtcto
Proporcion del
Poblacion inter
producto
( no
Producto interno interno
m brut
bruto(mi bruto
Pais il o per
llones de dedicadoa
e capit
dolares) la
s a
exportacio
) (dol
n
ares)
Alemania2 80,553 1,846,064 23,030 24
Austria 7,906 174,767 22,110 41
Belgica 10,039 209,594 20,880 73
Dinamarca 5,166 133,941 25,930 37
Espana 39,077 547,947 14,020 17
Finlandia 5,062 116,309 22,980 22
Francia 57,338 1,278,652 22,300 23
Grecia 10,454 75,106 7,180 23
Irlanda 3,536 42,798 12,100 62
Italia 57,844 1,186,568 20,510 20

9
Luxembourgo 389 13,716 35,260 94
Paises Bajos 15,167 312,340 20,590 54
Portugal 9,843 73,336 7,450 35
Reino Unido 57,701 1,024,769 17,760 24
Suecia 8,707 233,209 26,780 28
15 paises 368,782 7,269,116 19,6583 27c
12 paises 347,107 6,978,040 20,1034 25c

1. Indicadores de poblacion, produccion y exportacionesde Europa Oriental

Produtcto
Proporcion del
Poblacion inter
producto
( no
Producto interno interno
m bruto
bruto(mil bruto
Pais il per
lones de dedicadoa
e capit
dolares) la
s a
exportacio
) (dola
n
res)
Bulgaria 8,952 11,906 1,330 45
Hungria 10,202 30,671 3,010 33
Polonia 38,365 75,268 1,960 19
Republica
10,383 25,313 2,440 58
Checa
Republica
5,346 10,249 1,920 28
Slovaca
Rumania 22,865 24,865 1,090 28
Total 96,113 178,272 1,854a 305

1. Indicadores de poblacion, produccion y exportacionesde America del Norte

Pais Poblacion Producto interno Produtcto Proporcion del
( bruto(mill intern producto
m ones de o interno
il dolares) bruto bruto

10
 per
e
capita dedicadoa la
s
(dolar exportacion
)
es)
Canada 27,844 565,787 20,320 25
Estados
255,414 5,904,822 23,120 11
Unidos
Mexico 84,967 294,831 13,470 14
Total 368,225 6,765,440 18,374a 126

1. Principales bloques de comercio mundial7

Poblacion Produtcto interno
Producto interno
Bloque (m bruto
bruto(millo
Come Miembros ill per
nes de
rcial on capita
dolares)
es) (dolares)

TLC 3 363.3 6,404.2 17,622

SICA 6 29.5 36.0 1,222
ACS 25 198.7 474.0 2,386
G3 3 137.8 377.7 2,740
Pacto Andino 5 93.8 160.1 1,707
MERCOSUR 4 191.6 544.1 2,840
Union Europea8 15 368.8 7,269.1 19,658
Union Europea 12 345.0 6,144.0 17,809
APEC 13 1,961.0 11,135.1 5,678

TLC
Mexico 83.3 282.5 3,391
Estados Unidos 252.7 5,610.8 22,203
Canada a 27.3 510.8 18,711

SICA

11
Costa Rica 3.1 5.6 1,796

ACS
Cuba 10.7 26.9 2,500

G3
Colombia 33.6 41.7 1,241

Pacto Andino
Venezuela 20.2 53.4 2,644

MERCOSUR9
Brazil 151.4 414.1 2,735
Chile6 13.4 31.3 2,336

Union Europea
Alemania 79.6 1,692.0 21,256

APEC
Japon 124.0 3,337.0 26,911

As of 2010 we have now 27 countries contained within the EU.

Statistics from source: Olga M. Lazin, “Mexico as

Linchpin for Free Trade in the Americas,” in Statistical Abstract of

Latin America, vol. 31, 2001.

1. Population and economic power index from devepoed countries (Indice de

poblacion y poder economico de las principales unidades de comercio
mundial) in 2010

12
 Area Population/Poblation GNP GNP/C

Mexico 33.0 5.0 15.3

Canada 10.8 9.1 84.3
MERCOSUR 75.8 9.7 12.8
Alemania 31.5 30.2 95.7
EU 147.6 131.5 89.1
Japon 49.0 59.5 121.2

To conclude on a general note, NAFTA is more equitably positioned in terms of

internal wage gap between countries than is the EU. For NAFTA, the U.S.
manufacturing wage rate is 6.8 time larger than Mexico. For the EU, the existing
gap between the highest wage-paying Western Germany and the lowest paying
Portugal is 5.4, but the potential gap once EU expands into Eastern Europe is 36.6
times--the difference between West Germany and Bulgaria.

Equity is not the only issue, however, and indeed inequity in this case may help
Eastern Europe attract capital in the competition for ever cheaper manufacturing
sites in an era of globalization.

Crossing back over the Atlantic, Mexico has taken up a leading role in requiring
better Labor laws and environmental standards which are to be perfected within
NAFTA, otherwise the second bigger free trade alliance will remain only a mere
customs union.

RECENT POSITIVE DEVELOPMENTS:

1. Obama agrees to reinstate Bush pilot program for Mexico trucks and drivers
to enter USA, thus potentially ending WTO authorization of tariffs to punish
U.S. for having violated NAFTA.

2. Mexico is now benefiting from the electrical and hybrid car boom in the USA,
U.S. auto companies have made Mexico their assembly/manufacturing base also
because of Maquiladora legal advantages.

13
3. Auto and other manufacturing companies in EU countries (or other countries
which do not have an FTA (Free Trade Area) with NAFTA or the USA are
taking advantage of the fact that Mexico is the only country that has an FTA
with NAFTA, thus EU countries, e.g., use Mexico as their
manufacturing/assembly base to send their exports from Mexico to the USA as
Mexican exports.

4. Mexico is still the only country to have an FTA with both NAFTA and the
EU.
Canada is far from an accord with EU because each of the 27 EU countries will
have to approve of that FTA.

5. European and Asian countries are using Mexico as the base to export to
Central and South Americas as well as the Caribbean.

6. Many companies who left for China have returned to Mexico which has more
secure legal system, does not demand co-ownership, and has much, much lower
transport costs. Further, U.S. Executive can fly from many U.S.
cities and still be in the same time zone and not suffer from long-flight jetlag to
Asia.

7. The Asian fresh vegetable market for export to USA is based on Mexico's
West Coast. (The Dominican Republic failed for Asian exporters, owing to
infrastructure and transport issues into the USA as well as time delay to reach
the American West Coast where the Asian population has grown exponentially.)

7. Many U.S. Companies requiring high-tech industrial skills have moved back
to Mexico from the Caribbean (where they moved when the USA signed FTAs
with that area.) Caribbean countries tend to lack high-tech advantages. Plus
hurricanes are very disruptive.

B. CONTINUING PROBLEM:NAFTA FLAGS

1. Labor rights and double taxation issues for workers

14
are not included and far from inclusion.

2. Public safety issues for executives and employees are of great concern to
foreign companies.

Olga Lazin 2011

-----

Footnotes

(1)
Desmond Dinan, Ever Closer Union? An Introduction to the European
Community (Boulder, Colorado: Lynne Rienner Publishers, 1994), p. 479.
(2)
Currently 54 votes out of 76 total are needed to obtain a "qualified"
(decisive) majority; once the number of countries reaches 15, the decisive
majority will be 62 votes out of 87 total. the U.K.'s concern is that even if it
were to be joined by Germany and Holland to form a "liberal group," they
could not form a blocking minority even though they have 40% of the vote
between them. See Appendix A and "The European Union Survey," The
Economist, October 22, 1994, p. 20.
(3)
"The European Union: Back to the Drawing Board," The Economist,
September 10, 1994, pp. 21-23.
(4)
Ibid, p. 23.
(5)
See James W. Wilkie and Olga Lazin, "Mexico as Linchpin for Free Trade
in the Americas," Background Study prepared for PROFMEX-ANUIES
Conference on "Mexico and the Americas," Puerto Vallarta, Mexico,
November 13-16, 1994,

(6) Olga Lazin, http://www.allvoices.com/contributed-news/8467402-what-is-

new-with-nafta, March 16, 2011

Copyright © 2011 Olga Lazin-Andrei

15
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