Some have questioned whether the UK and EU-27 in fact can agree to unique rules of origin (“ROO”) in any future trade relationship between them. Aren’t the UK and EU-27 constrained by the fact that the EU is a signatory to the Regional Convention on pan-Euro-Mediterranean preferential rules of origin (“PEM Convention”)? If the EU-27 and the UK want to make use of the opportunity to cumulate originating items between the PEM Convention countries and any new agreement, then don’t the rules of origin need to be identical across both agreements?
This is a fair question, and I am going to offer comments based on two different questions:
- First, does the PEM Convention agreement require as a matter of its provisions that the EU does not enter into any other ROO that are not the same as the ROO found in the PEM Convention?
- Second, on the assumption that the answer to the first question is no, is it in the economic interests of the UK and the EU-27 to ensure that the ROO in any agreement between them allow cumulation with goods originating under the PEM Convention?
As a starting point, these are very different questions. The first is a legal question and the second is an economic and political question.
As to the first question, neither the EU-27 through its membership of the PEM Convention, nor the UK, under the provisions of the Withdrawal Agreement are required to agree ROO in any future trade relationship that are identical to, or even consistent with, the PEM Convention. This is clear from the absence of any such term in the PEM Convention, and the fact that the EU has signed FTAs with third countries where ROOs were negotiated and not derived automatically from the PEM Convention (e.g. Japan and Canada).
As to the second question, given that the PEM Convention is intended to simplify the “spaghetti bowl” of ROOs, and provide for simplified cumulation across varying FTAs, there are economic advantages to the EU-27 and UK agreeing ROOs that synchronize with those in the PEM Convention. Failing to adopt the PEM Convention rules means that there will a significant administrative burden for business in manufacturing under different sets of ROO in different agreements, and in many cases, cumulation between the groupings will not be possible, removing a significant commercial advantage of any FTA.
However, it is likely that UK politics will not favour or permit an adoption of the PEM Convention ROO as it will appear to “rob” the UK of an important negotiating right, and may appear to cede control to another third party arrangement (i.e. the PEM Convention). We do know from the respective mandates that the EU-27 would prefer that the arrangement between the EU-27 and UK cleaves to the PEM Convention ROO, and that the UK wants follow arrangements similar to those between the EU and Japan, presumably because the UK sees trade with Japan as a more lucrative opportunity than with the PEM Convention countries.
So while there will be pressure on the UK to use the simplified PEM Convention ROO, it is likely that the UK will continue to assert its right to negotiate bespoke ROO.