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Can Keir Starmer afford to say no to the EU’s advances?

A surprise invitation to join the Pan-Euro-Mediterranean customs agreement was welcomed by the City and would give the post-Brexit economy an instant boost – so why has the Labour government turned its nose up, asks James Moore

Thursday 23 January 2025 12:21 EST
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Femi Oluwole clashes with Richard Madeley over customs union on Good Morning Britain

Accused of talking down the economy ever since it won the election, Labour is now desperately trying to buff up its pro-growth credentials.

It has called on business regulators to do more to prioritise growth, promised a bonfire of red tape to get Britain building, and signalled its intent to prevent “nimbys” from frustrating big infrastructure projects through tortuous judicial reviews. Having lost more than 10,000 millionaires, it has even rowed back on tightening the tax rules for non-doms announced in October’s Budget.

Yet there is one lever that would give UK plc an instant boost – but which ministers are less than keen to go anywhere near: rejoining the EU, even in the most minor, technical ways.

Could that all be about to change? The EU’s trade commissioner this morning hinted that Brussels is open to the UK joining its pan-European customs area as part of the “great reset” of relations with Europe.

Signing up would not be going back on Brexit; it would not even mean rejoining the single market or customs union. It would see the UK entering into a limited but eminently sensible agreement that would make life much easier for, in particular, British manufacturers.

Launched in 2012, the Pan-Euro-Mediterranean Convention (PEM) permits materials, parts and ingredients for manufacturing supply chains to be sourced from across not only the EU, but also the European Free Trade Area nations (Iceland, Liechtenstein, Norway and Switzerland), parts of North Africa, Turkey, several Balkan countries and Ukraine. The UK is one of a handful of European countries not yet signed up to it.

If the government’s much-ballyhooed industrial strategy is ever to work – and goodness knows the sector needs a lift, as you’ll be aware if you’ve looked at the recent GDP numbers – it needs to bring down some of the fences that manufacturers must clear to sell their products on the continent.

You don’t have to take my word for it. Here’s Make UK, the trade body for all kinds of manufacturers, metal-bashers and businesses that Britain could use a lot more of: “With the opportunity being proposed by the current EU trade commissioner, Maroš Šefčovič, the UK government – with support from Make UK, and other industrial sector voices – should now prioritise the options that rejoining the Pan-Euro-Mediterranean Convention would mean to boost UK goods exports,” said Richard Rumbelow, director of international business for the organisation.

“It would also deliver further harmonisation on critical rules of origin criteria, thereby opening wider trade options and allowances with the EU. We have worked closely with successive administrations since Britain left the EU to seek the reduction and removal of barriers to trade to protect and support critical sector chains across the Channel.

“We continue to urge the government to seek ‘resets’ with the EU that allow for a trade and export policy approach that progressively reduce costs, delays and challenges in maintaining access to both the UK and EU markets.”

Nor is it just Make UK lining up to support this. The Institute of Directors told me its members were clear that a reset with Europe should be “a priority” for the government’s first 100 days, again because of the challenges the current arrangements pose to exporters.

Describing these as a “constraint on growth” – there’s that g-word the prime minister and chancellor are so fond of again – trade policy adviser Emma Rowland said: “Any avenue which might reduce trade frictions with our largest trading partner is worthy of further exploration.”

This really isn’t complicated. And yet, loud, stentorian voices will doubtless describe anything regarding Europe as a “betrayal of Brexit”. There are plenty of Tories who will feel the same way. The prime minister can either kowtow to them – or show some leadership by taking a sensible, pragmatic step in the national interest.

Joining the PEM would be particularly helpful for manufacturers with complicated, multi-layered supply chains; the sort of businesses that make complicated and specialised products, which is what British manufacturing does a lot of. The rules-of-origin requirements within the TCA – the UK-EU Trade and Cooperation Agreement negotiated by Boris Johnson – make life particularly awkward for this sort of business.

After Downing Street indicated that the pan-European trade agreement would not cross the government’s “red lines” for its future relationship with the EU, Europe minister Nick Thomas-Symonds told the Commons that it doesn’t currently have “any plans to join the PEM”.

Which, I suppose, is not a “no”. But the floating of the idea may have opened a few minds to the possibility and the potential.

Lobbying by the business sector will now begin in earnest.

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