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Emerging World Trade Blocs: The North AmericanFree Trade Area and the European UnionCompared
 
ByOlga M. Lazin, UCLA
STATISTICAL ANALYSISLet us compare for the early 1990s:(a) the 15 countries comprised in the European Union (data for which hereinclude three countries that are to join in January 1995),(b) the six Eastern European countries likely to join the European Union inthe 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 courtedby both NAFTA and EU, and(f) the NAFTA schedule for managing the opening of duty-free trade byitem for each of the three countries.Data on the major trade blocs are included in order to show the context inwhich NAFTA and EU discuss expansion. The Europe Agreement to unitethe continent east and west was signed on October 5, 1992, at Luxembourg;and the EU's negotiations to develop a special relationship with Mercosurhave acquired importance by mid-1994 as Mercosur debates how closely totry 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, andNAFTA. Table 4 covers the same data for major trade blocs. Table 5 shows
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the relative importance of the major trade blocs, using the USA as referencepoint. Table 6 presents the current situation of economic blocs as throughstatistics 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 millionpersons. Germany's population is 207 times larger than the smallestcountry--Luxembourg has only 389,000 persons. In terms of GNP, Germanyis 134 higher than that of LuxembourgGiven such disparities in size, is it "fair" that the EU member countries havedisproportionate voting rights which are weighted in favor of smallcountries? (For shares of voting rights, see Appendix A.) One goodargument 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 alarger population (39 million) but has EU's lowest export share in GNP(17%). Such complexities explain why weighted voting rights are not asarbitrary as first glance might have us believe. In any case big countries haveenough votes that it takes the votes of many small countries to reach thepresent blocking minority of 23 votes, a total which once the EU reaches 15countries will be 26 votes.(2)Table 2 shows ranges in size for the six countries of Eastern Europe seekingto join the EU. Poland has the highest GNP (US$ 75 billion), much higherthan that of EU member Ireland (US$ 42 billion). Unfortunately Poland isweak in exports, which amount to 19% of its GNP. Hungary's advantage isdue to its earlier leadership among the former communist countries incarrying out economic reform, its GNP/C being 54% higher than that of Poland.The relationship of Poland to "smaller" countries is interesting. AlthoughPoland has 4 times the population of Bulgaria's 9 million, Poland has thelowest export share of GNP. Bulgaria has the second largest export share inGNP (45), after the Czech Republic, which leads both in export share inGNP (58) and also in GNP/C (US$ 2,440) as compared to the rest of theEastern European countries.With regard to the two poorest countries seeking to join the EU, the poor
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economic performance of Romania is noteworthy. The Romanian GNP ishardly double that of the Slovak Republic (US$ 10 billion), yet the twocountries are equal in GNP export share (28%). Romania's trade withEastern Europe collapsed in 1991 along with the COMECON tradingorganization. Subsequent growth in trade with the West has been slow, andcurrent-account deficits of more than US$ billion have been recorded in eachof the last four years. In terms of population, Romania is 4 times larger thanthat of the Slovak Republic (5.3 million). The legacy of a high-inflationenvironment and modest growth accounts for the Romanian currency's verysmall purchasing power. Despite all theses shortcomings Romania became afull member of EU in ten years, that is December 1
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, 2007.The Slovak Republic with its small population and economy calls ourattention. How can it hope to compete in an expended EU? Although itspopulation is only 5 million and its GNP is only US$ 10 billion, Slovakiahas a relatively high level of export in GNP, 60% higher than the largerRomania.Given the above disparities, interests within the EU have been divided intofive "constituencies."(3)(See Chart 1.) The "Core" constituency is Franceand Germany (which founded in 1951 the European Coal and SteelCommunity to rebuild war-torn Western Europe). To this core are appendedBelgium, Holland, and Luxembourg, too close geographically and too smalleconomically to avoid being drawn into the orbit of power.The second EU constituency is made of the "free traders" Britain andDenmark (both of which joined the EU in the early 1970s). Britain leads theway to open a common market of goods, services, capital, and people whileat the same time trying to prevent the rise in Europe of any singly powerfulcountry.The EU third constituency involves the poorer, newly democratic membersadmitted in 1980s (Greece, 1981; Portugal and Spain, 1986), each seeking tomodernize their economies in order to guarantee against a resurgence of anyauthoritarian rule. This expansion widened the gap between richer andpoorer countries, the latter including Ireland and to some extent Italy.The fourth constituency involves Eastern Europe, which freed itself fromRussian rule after 1989. It sees admission to the EU, proposed for the year
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