LONDON — The U.K. government will consult businesses on whether Britain should join a European customs agreement to simplify rules around international supply chains.
The Pan-Euro-Mediterranean customs convention (PEM) relaxes rules of origin — useful for firms with international production chains that cross borders.
The government’s Trade Strategy published on Thursday morning says that joining PEM would “increase flexibility for UK exporters where they source their inputs.”
The agreement adds: “The question of UK accession therefore merits further review, and this is reflected in feedback from business. We will now engage business and PEM members to consider the benefits of joining PEM.”
But the document says the government recognizes “that PEM rules could have varying effects on businesses” and says it will assess “whether we are using our current trading relationships with these partners to best effect.”
PEM covers the 27 EU member states, as well as dozens of other countries in the region ranging from Turkey, Morocco and Syria to Serbia, Moldova and Ukraine.
The agreement is not a customs union, and the U.K. would still retain an independent trade policy and set its own tariffs and quotas.
But it would mean businesses such as car manufacturers sourcing parts of their products from other PEM countries would face less red tape.
Rules of origin
Under international trade rules, products can only benefit from the low tariffs in free trade agreements if they are actually made in the countries that are party to the agreement.
However, if a product is made in more than one country then “rules of origin” determine whether it counts as domestically produced or a foreign import — usually by looking at how much value has been added where.
Under PEM, companies can sometimes count inputs from other PEM members as domestic production — giving them more flexibility on where they source inputs from without risking being hit by tariffs.
Not all businesses support membership as some would see their competitors get a competitive advantage.
In January Trade Minister Douglas Alexander noted there are “some stakeholders who would argue that there would be disadvantages to sectors of U.K. business if we were to rejoin.”
But he added: “It is an issue that we are open to looking at, because we want to take a pragmatic view as to where the national interest lies.”
EU Brexit chief Maroš Šefčovič said at the time that British membership of the convention was “something we could consider.”
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