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The past several years have revealed deep flaws in the institutions
regulating the world economy. Governments throughout the world now focus their
attention on controlling turbulent forces unleashed by the advent of new
technologies. Yet throughout the 1997-98 global economic crisis, the processes
of regional economic integration in North America and Europe continued, and
these processes have lent a considerable measure of security to the regional
and global economic landscapes. Though it is easy enough to point to
shortcomings of the NAFTA and EU regional integration processes, there is also
reason to conclude that these enterprises are on the whole of benefit to the
world economic and political system. Evidence is mounting that close market
integration coupled with effective legal institutions provides economic, social
and political benefits over more diffuse market integration and the absence of
legalization. Though there are certainly risks inherent in the regionalization
of the world economy, the success of the NAFTA and EU relative to the world
economy as a whole suggests that there is more to be gained than feared from
The NAFTA and EU differ substantially in terms of the level of decision-making authority conferred on regional political institutions and on the degree to which they coordinate economic policy vis a vis third countries. Yet these differences should not obscure certain fundamental shared characteristics. Both systems are anchored by large and globally competitive national economies, both systems are highly legalized, and member countries of both systems share a commitment to democratic political institutions (even if imperfect ones).
The NAFTA entered into force on January 1, 1994 after a protracted political struggle in the United States. The first five years of the NAFTA's operation have witnessed substantial growth in trilateral trade between the Canada, Mexico and the United States (the "Parties"). There has been modest growth in cross-border investment and services trade. The Peso Crisis of 1994/95 led to substantial economic hardship and social dislocation in Mexico. Though the NAFTA may have played a role in precipitating the Peso Crisis by encouraging the inflow of foreign capital into the Mexican market, on balance the NAFTA appears to have played a net positive role in stabilizing Mexico's macro-economic situation and in laying the foundation for long-term economic growth. On the legal side, the NAFTA has led to modest gains in attention to the conditions of workers and the environment. The NAFTA was not designed with the intention to manage social welfare conditions. To the extent that the NAFTA has failed to address those conditions, this failure was built in to its institutions. Yet the NAFTA's structure which maintains the centers of political, social and cultural power in the hands of national government authorities may reflect a reasonable alternative to the EU system. The NAFTA's balance of the advantages of regional economic integration with a more distributed system of political decision-making power may be attractive to states which do not envision the regional creation of a quasi-federal polity.
The legal relationship between the NAFTA and WTO is ambiguous. Whether NAFTA or WTO rules prevail in the event of inconsistency is uncertain, and the extent to which NAFTA panels may or must consider applicable WTO rules is unclear. The ambiguity in NAFTA-WTO legal relations may reflect an underlying uncertainty in the policy arena. Trade negotiators understand that there are benefits and costs to regional integration, just as there are benefits and costs to multilateral integration. There are policy reasons to prefer each form of integration in specific contexts, and there are political and social interest group pressures for establishing various hierarchies of norms. Though it seems unlikely that NAFTA policy makers deliberately chose to leave the relationship between the NAFTA and WTO Agreement ambiguous, the underlying pressures to do so may account for the lack of a clearly defined relationship. While there may be sound policy reasons for clarifying the relationship between these two agreements, trade policy makers remain subject to conflicting pressures, and the ambiguity may persist for some time.
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