UK Eyes PEM Convention to Boost Trade—But Could Benefits Outweigh Risks?

A government proposal to simplify post-Brexit trade by joining a key European convention is facing scrutiny, with a parliamentary report warning of hidden costs and operational complexities for British firms.

The proposal centres on the Pan-Euro-Mediterranean (PEM) convention, a pact designed to simplify the complex 'rules of origin'—the criteria that determine whether a product can be labelled 'Made in the UK.' Supporters see it as a straightforward way to slash red tape and boost exports.

However, sceptics warn that for many British businesses, the hidden complexities and operational risks could outweigh any benefits, potentially creating more problems than the pact solves.

A Potential Boost for Post-Brexit Supply Chains

The government launched a 'Call for Evidence' on 17 November, asking businesses whether joining the 25-member bloc would streamline trade and encourage growth. According to the Department for Business and Trade (DBT), the move could make trade easier and cheaper for UK firms within a market worth over £500bn in 2024.

Industry advocates argue that the UK has been long overdue for such a move. Groups like UK Fashion & Textile (UKFT) have campaigned for PEM accession since Brexit, claiming it would resolve critical supply chain issues. Currently, complex rules mean a UK firm making clothes in Morocco with British fabric faces tariffs of up to 12% when selling into the EU, because the components are not recognised as a single product.

This exclusion is already having tangible effects. UKFT reports that one textile manufacturer estimates that joining PEM could save £12 million annually, yet nearly half of its production capacity has already been moved overseas post-Brexit.

This penalty effectively prices UK materials out of lucrative near-shore manufacturing hubs, leaving UK exporters at a disadvantage compared to EU rivals operating freely within the PEM zone.

'We want to hear from businesses to make sure we take advantage of the right opportunities that will help them to thrive,' said Business and Trade Secretary Peter Kyle, framing the consultation as part of efforts to make the UK 'the most connected nation in the world.'

Risks and Limitations of Joining PEM

But the proposal faces serious questions from the House of Commons Business and Trade committee. The committee warns that joining the pact is not a simple fix.

A recent report describes the move as a 'significant change for both UK and European traders in an already turbulent trade environment,' potentially creating new instability for firms still adapting to post-Brexit rules.

Crucially, the report dismantles the idea that PEM would reduce red tape. It states explicitly that the convention would 'not reduce the amount or cost of paperwork required to import or export goods.' Instead of replacing the UK's current trade deal with the EU, it would operate alongside it, adding a new layer of complexity for businesses.

The most significant warning concerns the UK's fast-growing electric vehicle (EV) industry. The committee found that, for this vital sector, PEM's rules of origin are 'more difficult to meet' than those in the existing UK-EU trade agreement, which was designed to encourage domestic battery production. Joining PEM could, therefore, inadvertently penalise this key growth industry.

The report concludes that the benefits of PEM may be highly targeted, helping sectors like textiles but creating new challenges elsewhere.

A Balanced Approach

To address these issues, the committee recommends that the UK rejoin the convention but alongside its current trade agreement, rather than replacing it. It also urges the government to lobby PEM members to adopt the UK's more favourable rules for electric vehicles.

The government now faces the task of balancing the clear demand from some sectors for simplified trade with the operational risks highlighted by its own parliamentary watchdog. The next steps will depend on evidence gathered from UK businesses in the coming weeks.