Britain's Post Brexit Plans Take an Exciting Turn

Summary: Nine years after Brexit, the UK is reconsidering its trade stance amid economic struggles exacerbated by the pandemic and the Russia-Ukraine war. With bilateral trade deals proving insufficient and a UK-US free trade agreement failing to materialize, Britain is now exploring entry into the Pan-Euro-Mediterranean Convention (PEM), a customs arrangement that could restore some of its pre-Brexit trade benefits. By joining PEM, the UK could source raw materials from non-EU countries like Turkey and still export to the EU tariff-free, effectively creating a backdoor into the EU market without rejoining the single market or allowing free movement. The UK’s business community strongly supports the move, citing reduced costs and paperwork. While the previous Conservative government ignored PEM, the newly elected Labour government is open to the idea, with Chancellor Rachel Reeves expressing interest. Though the UK’s accession remains uncertain, Prime Minister Keir Starmer’s swift diplomatic outreach to the EU signals a renewed effort to repair relations. __________________________________________________________________________________

Nine years ago, when the UK voted to leave the EU, few could have predicted that the combined impact of the pandemic and the uncertainty brought by the Russia-Ukraine war would turn Downing Street into a revolving door and sink the British economy even deeper into turmoil. After running around the world seeking trade deals, British prime ministers have realized that bilateral trade isn’t as easy as they once imagined. The much-anticipated UK-US free trade agreement never materialized, and the scattered, piecemeal trade deals they did secure were nowhere near enough to change the country’s economic trajectory. After all this effort, the UK has decided to soften its stance: “EU 'could consider' UK joining pan-Europe customs scheme", according to the BBC.

Maro? ?ef?ovi?, the EU’s post-Brexit trade negotiator, told the BBC that the EU “pan-European [customs] area is something we could consider” as part of the discussions on “resetting” UK-EU relations.

The so-called Pan-European customs arrangement ?ef?ovi? referred to is the Pan-Euro-Mediterranean Convention (PEM). Under this agreement, member states can source components and raw materials from Europe, North Africa, and dozens of surrounding countries, and export to the EU tariff-free. While this rule closely resembles a clause in the Brexit agreement, its practical effects are vastly different.

Under the Brexit deal, if exported goods must contain a certain proportion of raw materials from first-world countries, businesses often find that, after accounting for various additional costs, they can barely make a profit. Furthermore, the agreement stipulates that if British exports to the EU primarily use raw materials from non-EU countries (such as Turkey), EU importers of these finished products must pay tariffs.

However, if the UK successfully joins the PEM agreement, Turkey—being a member—could seamlessly supply raw materials to the UK, allowing British manufacturers to export finished products to the EU tariff-free. This means that even if the UK doesn’t wish to trade freedom of movement for access to the EU’s single market, it can still enjoy many of the duty-free trade benefits it had before Brexit. In essence, the PEM agreement could serve as a backdoor for the UK to re-enter the EU market.

Strong Support from the UK’s Business Community

The UK’s business and industrial sectors are actively pushing for PEM accession. William Bain, head of trade policy at the British Chambers of Commerce, stated that joining PEM “would reduce paperwork and costs for many UK firms as it would align rules and regulations on both sides in relation to the sourcing of components and raw materials used in exports.”

During the Conservative government’s tenure, PEM was never considered a part of the post-Brexit trade strategy. While the newly elected Labour government remains ambiguous about its stance, the country’s second-in-command, Chancellor Rachel Reeves, has expressed strong support. Reeves told Sky News’ Trevor Phillips Sunday Morning Show:?

“It was really interesting to see Maros Sefcovic this week suggest that the UK might be welcome in that Pan Euro Mediterranean customs framework.”

A Downing Street spokesperson also reassured the public that the PEM agreement would not compromise the red lines of the single market or free movement.

Will the UK Ultimately Join PEM?

It is still too early to say whether the UK will formally join PEM. However, the fact that Keir Starmer sent the Foreign Secretary to Europe the day after his election victory speaks volumes about the Labour government’s determination to repair ties with the EU.