Breaking up, as in Brexit, NAFTA can be hard to do.
• In the gaps between NAFTA negotiations and U. S.- Canada interestrate ponderings, Brexit remains a painfully present problem that could fill any economic void with even greater global uncertainty.
At the same time, the slow slog of talks on the make-up of a new free- trade pact between North America’s three economies seems to have lost some of its direction in the process — leaving monetary policymakers to plod along for themselves or, as we have often seen recently, wait for more data to flow in before making any more moves on lending rates.
Like the often-divisive negotiations on revamping the North American Free Trade Agreement — set to resume for a sixth round from Jan. 23 to 28, this time in Montreal — representatives of the European Union will come together for a summit on Dec. 14 and 15 in Brussels, a gathering that could be more problematic than productive.
British citizens voted in a referendum on June 23, 2016 to exit the EU by a margin of just 51.9 per cent to 48.1 per cent — a close call that led to concerns the narrow victory should not have been accepted. But as negotiations stand now, the U. K. is set to leave the 28- nation political and economic bloc on March 29, 2019.
“The fact is that the British people made their decision. We’re coming out of the European Union and the only question is whether there can be an agreement with the European Union as to how that happens,” Brexit supporter Peter Bone said last week.
“In my view, if there is no agreement at this (EU) council that sufficient progress has been made to move forward, we have to make the decision, reluctantly, there will be no deal,” said Bone, a Conservative member of the U.K. Parliament.
One major breakthrough, however, has inserted a tad of optimism into the yearand-a-half long political crisis.
The EU and Britain reached a long- sought deal on Friday to keep Northern Ireland’s border open to the Republic of Ireland, even though the republic is an independent country and member of the European trading bloc.
In other words, t here will eventually be “no hard border” between Northern Ireland and the Republic of Ireland. There was also an agreement forth eU. K. to pay a break-up settlement of $53 billion.
“I very much welcome the prospect of moving ahead to the next phase of the Brexit talks on trade and security,” said British Prime Minister Elizabeth May.
European Council president Donald Tusk, however, said “so much time has been devoted to the easier part of the task and now to negotiate a transition arrangement and the framework for our future relationship we have, de facto, less than a year.”
Tusk added: “We all know that breaking up is hard but breaking up and building a new relation is much harder.”
Ian Russell, president and CEO of the Investment Industry Association of Canada, said the Brexit issue has “implications for the global economy, and financial insti- tutions and Canadian businesses operating in the European and global markets.”
“The consensus is the Brexit process has been mishandled from the start. The U.K. has failed to define its core objectives and its negotiating strategy,” Russell said in an IIAC opinion piece.
“The government is now nearly halfway through the defined negotiating period, having triggered Article 50 ( exit mechanism) last March, and negotiations on a trade deal have not yet begun. It has become clear a decision on a financial settlement is a precondition for starting negotiations on both the transition period and final trade arrangement.”
What is missing in the whole Brexit process is “an overarching structure” for regulatory cooperation on the flow of capital across borders, according to Russell.
The Financial Stability Board (FSB) “may be the best possible vehicle to take on responsibility for a regional or global collaborative framework for regulatory coordination of rules and mechanisms.”
The FSB — chaired by Bank of England governor Mark Carney, previously head of the Bank of Canada — “would need to work closely with individual securities regulators and their governments, perhaps beginning with the larger jurisdictions such as the EU and U. K., to define a mandate and structure for regulatory coordination.”
While there are “definitely some parallels” between Brexit and NAFTA, “the difference is that in Brexit, one partner has already effectively pulled the trigger on terminating, whereas in NAFTA we’re thankfully not at that stage yet,” said Douglas Porter, chief economist at BMO Capital Markets.
“Another difference is that Brexit involves more of a political and legal aspect, whereas NAFTA is much more focused on trade, commerce and investment,” he said. “I would suggest that Brexit is much further down the road and is more all- encompassing as well.”