Regional Approaches

Over the last few years, governments have taken a number of steps to promote free trade or to broaden regional markets. Among the most important were the following:

• The most controversial proposal for lowering trade barriers was the North American Free Trade Agreement (NAFTA), which was hotly debated and passed by Congress by a close vote in 1993. Mexico is the second-largest trading partner of the United States, and most U.S.-Mexico trade is in manufactured goods. NAFTA not only allows goods to pass tariff free across the borders but also liberalizes regulation on investment by the United States and Canada in Nexico. plan argued that it allow a more efficient pattern of specialization and would enable U.S. firms to compete more effectively against firms is other countries particularly labor groups. argued that it would increase the supply of goods produced by lows killed labor and· thereby the wages of workers in the affected Economics however. that regional trading agreements like NAFI’A can inefficiency if they exclude potential trading . They point to the nation in the countries . which were excluded from the free-trade of the agreement. that followed the par.sage of NAFA as a cautionary example of the dangers of the regional approach.

The most ~hing trade accord has toward a single market among the major European countries. Since World War II. the nation of the European Union (EU) have a common market with minimal to international trade or movement of factors • of production. The tint step eliminating all internal tariff and regulatory barriers to trade and labor and capital flows. The most recent step. analyzed in the chapters on macroeconomics, has been the introduction of a common currency in the core countries of Western Europe. According to the current schedule, the European Union abolish national currencies by 2003, producing a powerhouse “Euro land” economy as large as the United States. European unification is one of history’s most eloquent tributes to the power of an idea-the idea that free and open trade promotes economic efficiency and technological advance.