1. The Regional Convention on pan-Euro-Mediterranean preferential rules of origin A remedy for the 'spaghetti bowl effect'
WCO KNOWLEDGE ACADEMY FOR CUSTOMS AND TRADE 2014 Rules of Origin July 2014
Guillaume DOREY
DG TAXUD – Unit B3 Rules of origin

2. Content 1) Introduction 2) The PEM regional Convention
a) General presentation
b) Concept and benefits
c) State of play of ratification process
d) New accession
e) On-going work
3) Revision of Rules of origin
The PEM Convention and the GSP reform ( )
Presentation of the GSP reform

3. I. Introduction

4. Preferential Originating Status
A link between a product and a country
depending on:
- the location of the production
- the conditions of the production
in order to:
- decide about granting or not tariff preferences

5. II. The PEM regional Convention
An international agreement:
- Regional Convention on pan-Euro-Mediterranean preferential rules of origin
With 2 appendixes:
General rules for the definition of the concept of originating products
Special provisions

6. II. a. – General presentation Appendix I of the regional Convention

7. II. a. – General presentation Appendix I of the regional Convention
Main principles criteria
Wholly obtained products
Positive list
Minimal operations
Positive list
Tolerance rule
% in value or weight
Sufficiently worked or processed products
List rules (Annex II)
Principle of territoriality
with tolerance
Direct transport rule
Strict
Drawback of customs duties
Allowed or prohibited

8. A general balance
List rules
Rules of
Origin
Tolerance
Cumulation

9. II. a. – General presentation Appendix I of the regional Convention
A Regional Convention conceived for cumulation.
Network of bilateral free trade agreements between the EU, EFTA States, Faroe Islands, Turkey and Mediterranean countries participating in the Barcelona process (42 parties in total)
A system of pan-Euro-Mediterranean cumulation operates on the basis of identical rules of origin (PEM protocol on rules of origin) annexed to each bilateral free trade agreement
Cumulation concept: "what is yours is mine and what is mine is yours"
Tool of regional integration/enhanced sourcing possibilities 9

10. PEM cumulation 40% max non-originating 1.000 € 4.000 € 1.000 €EU
Morocco
Turkey
4.000 €
Tunisia
1.000 € €
Russia
2.000 €

11. Man-made staple fibres SH 5503
Manufacture from yarn
Swimsuit HS
Knitted fabrics HS 60 05
EUR-MED or Invoice declaration EUR-MED PO Switzerland « no cumulation applied » 2
Jordan
Switzerland 3 1 SW
EUR-MED or Invoice declaration EUR-MED PO Jordan « Cumulation applied with Switzerland »
Egypt
Man-made staple fibres SH 5503
Export without working 4
Tunisia
Korea

12. Turkey EU Norway Bosnia and Herzegovina Switzerland/ Lichtenstein
Montenegro
Iceland
Faroe
Albania
Morocco
Former Yugoslav
Rep. of Macedonia
Algeria
Serbia
Tunisia
Egypt
Lebanon
Syria
Israel
Jordan
Palestine 12

13. PEM cumulation - 16 parties:
EU, TR, Faroe Islands, EFTA States, Mediterranean Countries
SAP cumulation (Stabilisation and Association Process) – 7 partners:
EU, TR, 5 Western Balkan partners
More than 60 Free Trade Agreements (FTA) between these partners
Each containing a Protocol setting identical rules of origin
Modifying rules of origin requires changing all the Protocols
PEM and SAP do not overlap

14. Turkey EU Norway Bosnia and Herzegovina Switzerland/ Lichtenstein
Montenegro
Iceland
Kosovo*
How does PEM cumulation work?
There are FTAs linking all /some of the Members
Each bilateral FTA contains a Protocol on origin
All the Protocols on origin contain identical RoO
Every time a modification in the RoO is needed, all
the Protocols need to be adapted.
Faroe
Rep. of Moldova
Morocco
Albania
Algeria
Former Yugoslav
Rep. of Macedonia
Tunisia
Serbia
Egypt
Lebanon
Jordan
Israel
Syria
Palestine
* This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence. 14

15. A single text on RoO, which replaces each Protocol in each FTA
Turkey EU
Norway
Bosnia and
Herzegovina
Switzerland/
Lichtenstein
Montenegro
Iceland
Kosovo*
The PEM Convention:
A single text on RoO, which replaces each Protocol in each FTA
Faroe
Rep. of Moldova
Morocco
Albania
Algeria
Former Yugoslav Rep. of
Macedonia
Tunisia
Serbia
Egypt
Lebanon
Syria
Palestine
Israel
Jordan 15

16. New Matrix of PEM cumulation
(OJ C 111, , p.7)

17. II. b. – The PEM Convention:
Concept and benefits
Will base diagonal cumulation of origin on a single legal instrument. No more separate protocols on RoO.
Will allow easier revision and update of RoO.
Will include entire Western Balkan region into in the pan-Euro-Mediterranean zone of diagonal cumulation.
Will allow accession of neighbouring countries in the pan-Euro-Mediterranean cumulation zone.
Will create extended opportunities for cumulation

18. Pan Euro Med Convention Other EU neighbouring countries Lybia Ukraine
Preferences
Reciprocal EU
Balkans
Meds –EFTA –Turkey
Autonomous
Preferences
ATMs ATPs
XK MD
GSP countries
(Georgia) 18

19. II. c. - State of play of ratification process
Contracting Parties for which the Convention has entered into force.
NB: Convention still needs to be referred to in their origin protocols so as to become applicable)

20. Partner Signature Notification Entry into force Norway 15.06.2011
PEM Working Group
December 2013
Partner
Signature
Notification
Entry into force
Norway
Switzerland
Lichtenstein
Iceland
Albania EU
Former Yugoslav Republic of Macedonia
Montenegro
Serbia
Jordan
Faroe Islands
Turkey

21. Partner Signature Notification Entry into force Egypt 09.10.2013
PEM Working Group
December 2013
Partner
Signature
Notification
Entry into force
Egypt
23/04/2014
Palestine
(June to be confirmed)
Tunisia
Israel
Morocco
Algeria
Bosnia and Herzegovina
Kosovo*
Lebanon
Syria
* This designation is without prejudice to positions on status and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo Declaration of Independence.

22. II. d. - Accession of the countries of the Eastern Partnership
The EU Neibourhood Policy:
the Eastern Partnership,
the Union for the Mediterranean
Communication on "A New Response to Changing Neighbourhood" May 2011:
"The Commission will examine how the Convention can be
extended to other ENP partners and will make appropriate
proposals."
Accession to PEM Convention offered in DCFTA:
Ukraine,
Georgia,
Moldova

23. II. e. - The PEM Convention – on-going work
Communication on "A New Response to a Changing Neighbourhood" May "The rapid implementation of the new Convention on Pan-Euro-Mediterranean preferential rules of origin will be one important element for the partners in the South."

24. II. e. - The PEM Convention – on-going work
Two exercises conducted in parallel:
phasing-in of Convention and
discussions on revision (both on articles and 'list rules')
Objective:
have both exercises completed and 'joined' in mid-2015

25. III. The revision of ‘PEM’ rules of origin
The revision work is being carried out in the Pan-Euro-Med Working Group (PEM WG)
Contracting Parties (as much as possible grouped geographically) were invited to express their positions regarding list rules:
EU + Turkey
EFTA States
MED countries
Western Balkans
Aim of the revision:
simpler rules,
more liberal rules, and
rules responding to traders' needs.

26. The revision of ‘PEM’ rules of origin
SIMPLER
more RELAXED
responding to ECONOMIC REALITIES

27. III. The revision of ‘PEM’ rules of origin
Article by article examination
(already well advanced but all partners rightly consider that provisions such as cumulation cannot be assessed without full knowledge of future list rules)
On list rules: Seeking convergences

28. Commission Regulation (EU) n°1063/2010
III. a. Presentation of the GSP reform
Commission Regulation (EU) n°1063/2010
of 18 November 2010
A - The background
B - Overview of the main changes between the old GSP rules and the new GSP rules
C – Modernisation of the rules of origin

29. A. GSP Reform - Background
1) Commission’s Green Paper (2003) and Communication (2005) on the simplification of the rules of origin
2) Impact assessment
3)Commission’s draft regulation (October 2007)
Commission’s revised proposal (November 2008)
Agreement of the Member States (September 2010)

30. A. GSP Reform - Background
1) Commission’s Green Paper (2003) and Communication (2005) on the simplification of the rules of origin
The old origin rules did not fit current economic reality.
The current origin rules were seen as too complex, restrictive and they lacked transparency.
There was a clear call for rationalisation and simplification of the origin rules.
The system needed to be changed in order to provide an adequate level of assurance that the products for which preferential treatment was claimed did actually satisfy the origin rules.
The system of paper-based certificates needed to be replaced by an electronic document.
There was a need for increased European Union monitoring and greater coordination and cooperation to ensure compliance with the rules of origin.

31. A. GSP Reform - Background
2) Impact assessment
Simplification and appropriate relaxation of the rules for determining origin
Supported by adequate management and control procedures, all parties need to know exactly what is required of them and it is necessary for there to be confidence in administrations.
Conversely, efficient management and control is facilitated by rules which are easy to understand and apply.

32. A. GSP Reform - Background
3) Commission’s draft regulation in October 2007
Commission’s revised proposal (November 2008)
Agreement of the Member States (September 2010)
Commission Regulation (EU) N° 1063/2010 of

33. A. GSP Reform - Background
Legal framework of the GSP rules of origin
Commission Regulation (EU) No 1063/2010 of amending Regulation (EEC) No 2454/93 (implementing measures of the customs code)
Official Journal No L 307 of , p. 1
Entered into force on

34. B. GSP Reform - Main changes
The rules of origin are defined as far as possible on a sector-by-sector rather than a product-by-product basis.
The rules applicable to products also take into account the specific situation of least developed countries (in general allowing a maximum content of non-originating materials of up to 70% or providing for an equivalent level of relaxation for products originating in the least developed countries)

35. B. GSP Reform - Main changes
Simpler origin determination criteria
Applicability of cumulation of origin
Other features in general provisions

36. B. GSP Reform - Main changes First main change
Simpler origin determination criteria
A maximum permitted content of non-originating materials;
Change of tariff heading or sub-heading;
A specific working and processing operation;
The use of wholly obtained materials.

37. B. GSP Reform - Main changes Second main change
Applicability of cumulation of origin
Bilateral cumulation EU-beneficiary country;
Simplified regional cumulation with 4 regional groups;
Extended cumulation between a beneficiary country and a country with which the European Union has a free-trade agreement in force;
Cumulation of origin with industrial goods originating in Norway and Switzerland, extended to Turkey.

38. B. GSP Reform - Main changes Third main change
Other features in general provisions
Replacement of the direct transport rule with a more flexible non manipulation principle (Article 74);
Removal of the crew requirement in the definition of "its vessels" for fishery products captured outside territorial waters to be considered as wholly obtained (Article 75(2));
Relaxation (from 10 to 15%) and the adaptation to sectoral specificities of the general tolerance rule, from now on expressed as a percentage of weight for agricultural products (Article 79).

39. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
a maximum permitted content of non-originating materials
Introduction of an added value rule for chapter 44 with a threshold of 70 % of non originating materials

40. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
change of tariff heading or sub-heading
Suppression of additionnal mandatory rules

41. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
Until 2011

42. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
A specific working and processing operation

43. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
The use of wholly obtained materials
The definition of the product wholly obtained is more precise.
New wording « grown »
New definition
New definition
New wording « scrap »

44. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Applicability of cumulation of origin
Cumulation of origin with industrial goods originating in Norway and Switzerland, extended to Turkey
A new type of cumulation: extended cumulation with industrial goods
A new group for regional cumulation : MERCOSUR (Argentina, Uruguay, Paraguay, Brasil)
A new possibility of « cross » cumulation between the groups I and III

45. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions
Replacement of the direct transport rule with a more flexible non manipulation principle (Article 74);
Removal of the crew requirement in the definition of "its vessels" for fishery products captured outside territorial waters to be considered as wholly obtained (Article 75-2);
Relaxation (from 10 to 15%) and the adaptation to sectoral specificities of the general tolerance rule, from now on expressed as a percentage of weight for agricultural products (Article 79);
Derogation.

46. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions
Non manipulation principle (Article 74 – CCIP)
Direct transport rule replaced by a “non-manipulation” clause
Conditions for transportation have been relaxed and simplified in order to correspond with the practice of the supply chain

47. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions
Non manipulation principle (Article 74 – CCIP)
The products declared for release for free circulation in the European Union shall be the same products as exported from the beneficiary country in which they are considered to originate. They shall not have been altered, transformed in any way or subjected to operations other than operations to preserve them in good condition, prior to being declared for release for free circulation. Compliance with this provision shall be considered as satisfied unless the customs authorities have reason to believe the contrary; in such cases, the customs authorities may request the declarant to provide evidence of compliance, which may be given by any means.

48. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions
Non manipulation principle (Article 74 – CCIP)
On the contrary, the direct transport rule requires that the goods are either:
transported to the EU without passing through the territory of any other country;
or transported via another country, in circumstances where they remain under the control of the customs in that country and do not undergo operations other than unloading, reloading or any operation designed to keep them in good condition

49. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions
Non manipulation principle (Article 74 – CCIP)
With the traditional direct transport rule, the evidence may be either:
a transport document indicating a singled contract for the carriage of the goods;
a certificate issued by the customs authorities of the country of transit:
giving an exact description of the goods;
stating the dates of unloading and reloading or arrival and departure; and that the goods
remained under customs control and underwent no operations other than those necessary to keep them in good condition;
any documents that confirm that the conditions set out above have been met.

50. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions
Removal of the crew requirement in the definition of "its vessels" for fishery products captured outside territorial waters to be considered as wholly obtained (Article CCIP)
Reflect the reality of the economic sector.
Vessels conditions which allow fishery products to be considered as originating or not, are simplified.

51. C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions
Relaxation (from 10% to 15%) and the adaptation to sectorial specificities of the general tolerance rule, from now on expressed as a percentage of weight for agricultural products (Article 79 – CCIP)
Tolerance rule is relaxed from 10% to 15%.
Tolerance is expressed either in weight or in
ex-works price

52. Example of product containing sugar
C. GSP Reform – Modernisation of RoO
Appropriate rules for determining the acquisition of origin
Improvements in general provisions/list rules
Tolerance rule expressed as a percentage of weight for agricultural products
Example of product containing sugar

53. Tolerance in value and in weight in rules of origin. How does it work?
Standard EU rule of origin for Chapter 18 (PEM and former GSP)
Manufacture:
From materials of any heading, except that of the product, and
-in which the value of all the materials of Chapter 17 used does not exceed 30% of the ex-works price of the product
Tolerance in value
Price 5 $
3$ paid for white sugar = 30% of 10$ → all sugar can be non-originating
After prices have changed, 5$ paid for white sugar = 50% of 10$ → 20% of sugar used need to be originating
Price 3 $
Price 5 $
Price 3 $
Product 2 White sugar
Product 1 Cocoa paste
If price for materials of
Ch 17 in the world market increases, it becomes more difficult to meet the rule of origin.
Weight 75 kg
Weight 30 kg
Final product
Chocolates not containing alcohol
Weight 100 kg
Price 10 $

54. Tolerance in value and in weight in rules of origin. How does it work?
Tolerance in weight
Rule of origin for Chapter 18 in the new GSP:
Manufacture: [...]
in which the individual weight of sugar does not exceed 40% of the weight of the final product [...]
Price 5 $
Price 3 $
30 kg at price of 3$ → all sugar can be non-originating (30 kg < 40% of 100 kg weight → the rule is met)
30 kg at price of 5$ → all sugar can be non-originating (30 kg < 40% of 100 kg weight → the rule is met)
Price 3 $
Price 5 $
Product 1 Cocoa paste
Product 2 White sugar
Compliance with rules of origin is unaffected by price fluctuations of raw materials; weight is more objective and easier to monitor
Weight 75 kg
Weight 30 kg
Final product
Chocolates not containing alcohol
Weight 100 kg
Price 10 $

55. III. b. EU proposal for the PEM Convention in line with the GSP reform
New approach in line with the reform of EU GSP RoO
General provisions:
Definitions
Crew requirement
Tolerance rule
Non-alteration rule
List rules:
Sector-by-sector approach
Simpler approach (alternative rule, chapter rule…)

56. III. b. EU proposal for the PEM Convention in line with the GSP reform
Example of textile
The current standard PEM rule
defines the origin of the final product by taking into account the manufacturing process in relation to the non-originating materials used at the start of the processing.
New approach with the reform of EU GSP RoO
Identification of key manufacturing processes carried out in relation to the final product
The origin of the materials used in these manufacturing processes should not be taken into account.

57. Current PEM rule for yarn:
GSP rule for yarn:
EU proposal for PEM rule for yarns:
Manufacture from:
- raw silk or silk waste, carded or combed or otherwise prepared for spinning,
- other natural fibres, not carded or combed or otherwise prepared for spinning,
- chemical materials or textile pulp, or
- paper-making materials
Spinning of natural fibres or
extrusion of man-made fibres accompanied by spinning or twisting
Extrusion of man-made fibres combined with spinning
Twisting combined with gimping

58. III. b. EU proposal for the PEM Convention in line with the GSP reform
The printing rule
recognised as origin conferring when combined with specific additional processes and fulfils a value added criterion.
Two steps:
1: the creation of a simple printing rule (definition)
2: the creation of a standalone printing rule 58

59. Position of PEM partners
Current PEM
Position 1
Status quo
Position 2
Double transformation
with options
Position 3
Single transformation (with options or not)
ex Chapter 62
Articles of apparel and clothing accessories, not knitted or crocheted; except for:
Manufacture from yarn
PEM Rule to be kept
Weaving combined with making-up or
Making-up preceded by Printing (as standalone operation)
Making-up preceded by Printing (as standalone operation) or by
dyeing (as standalone operation)
Manufacture from fabric (+ dyeing) Or
Manufacture from materials of any heading, except that of the product
Manufacture in which the value of all the materials used does not exceed 70% of the ex-works price of the product 59

60. III. b. EU proposal for the PEM Convention in line with the GSP reform
A balanced approach
- double transformation
- strike the balance between the needs of more traditional and more innovative textile industries.
- allows more flexibility; allows more qualifying processes and processes at a higher transformation level; provides simplification; increases legal certainty. 60

61. Conclusion The revision of ‘PEM’ rules of origin
The way forward:
Compromise will have to be sought… at PEM working group level… and EU level ('common position' to be adopted by qualified majority)
Given the divergent views which have been presented during consultations, no Party can escape making concessions.

62. A general balance
List rules
Rules of
Origin
Tolerance
Cumulation

63. European Commission DG Taxation and Customs Union
Unit B3 – Origin of goods
European Commission DG Taxation and Customs Union