UK leaves the door open on joining Europe customs scheme

UK ministers are looking at joining an EU trade arrangement with neighbouring countries as part of post-Brexit “reset” talks which begin in earnest this year, as Brussels confirmed it would be open to the idea.

Maroš Šefčovič, the EU’s trade chief who is leading talks with Britain, said on Thursday a “pan-European [customs] area is something we could consider” as part of talks between London and Brussels.

Šefčovič referred in a BBC interview to the idea of Britain joining the Pan-Euro-Mediterranean convention (PEM), a customs agreement between the EU and 20 countries, including several in the Middle East and the Balkans, where all countries share the same “rules of origin”.

UK trade minister Douglas Alexander hinted at the possibility of Britain joining PEM when he told MPs this week: “It’s something we are open to looking at. We want to take a pragmatic view on where the national interest lies.”

However, officials said that discussions of the idea within government are at an early stage. Alexander told the House of Commons’ business and trade committee: “There are some stakeholders who would argue there would be disadvantages to some business sectors in the UK.”

The rules of origin in trade deals require exporters to demonstrate their products are sufficiently locally made, usually about 45 per cent, to qualify for tariff-free access to the market.

Under the EU-UK Trade and Cooperation Agreement, the UK agreed a set of rules of origin with the EU. But joining PEM would allow UK companies to use inputs from those countries in their supply chains in order to be able to export goods into the EU tariff-free.

Joining PEM would not, however, remove other elements of red tape, such as veterinary certificates, licences and some compliance documents.

Asked about the idea on the BBC Today programme, housing minister Matthew Pennycook said: “As for this particular arrangement, we’re not seeking to participate in it at the present time.”

The idea of Britain joining PEM has been promoted by Labour MP Stella Creasy. “Red tape from Brexit hits British business in many ways,” she said.

“Joining PEM would help cut the paperwork connected to rules of origin requirements which is why we have long argued it should be a priority for the UK as one way to undo the damage to trade leaving the EU has done.”

The British Chambers of Commerce, the trade association, has said the government should consider rejoining the convention on the basis it “could provide additional flexibility” to businesses trading with the EU.

“The UK should propose rejoining the Pan-Euro-Mediterranean convention to offer greater cumulation in rules of origin for manufacturers,” the group said in its 2023 trade manifesto, based in part on survey data from members.

Industry insiders also said the government had been consulting some sectors over whether they would benefit from joining PEM, but added that no decisions had been made and quantitative analysis of the pros and cons was still needed in Whitehall.

Since the signing of the Trade and Cooperation Agreement, the EU has indicated that it would be open to the UK joining PEM in the absence of a decision by London to rejoin a full-blown customs union.