PEM Convention

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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
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
a) The PEM Convention and the GSP reform (2003-2011)
b) Presentation of the GSP reform
I. Introduction
3
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
II. The PEM regional Convention
An international agreement:
- Regional Convention on pan-EuroMediterranean preferential rules of
origin
With 2 appendixes:
- General rules for the
definition of the concept of
originating products
- Special provisions
http://new.eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2013:054:FULL
II. a. – General presentation
Appendix I of the regional Convention
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:054:0004:0158:EN:PDF
6
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
7
A general balance
List rules
Rules of
Origin
Tolerance
Cumulation
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
40% max non-originating
PEM cumulation
1.000 €
Turkey
EU
4.000 €
Morocco
Tunisia
1.000 €
10.000 €
Russia
2.000 €
Manufacture from yarn
Swimsuit
HS 61 12
EUR-MED or Invoice declaration EUR-MED
PO Switzerland
« no cumulation applied »
2
Jordan
Knitted
fabrics
HS 60 05
Switzerland
3
1
EUR-MED or Invoice declaration EUR-MED
PO Jordan
« Cumulation applied with Switzerland »
Egypt
Export without
working
4
Tunisia
SW
Man-made staple
fibres
SH 5503
Korea
Turkey
EU
Norway
Bosnia and
Herzegovina
Switzerland/
Lichtenstein
Montenegro
Iceland
Faroe
Albania
Morocco
Former Yugoslav
Rep. of Macedonia
Algeria
Serbia
Tunisia
Egypt
Lebanon
Jordan
Palestine
Israel
Syria
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
Bosnia and
Herzegovina
Turkey
EU
Norway
Switzerland/
Lichtenstein
Montenegro
Iceland
Kosovo*
How does PEM cumulation work?
•There are FTAs linking all /some of the Members
Rep. of Moldova
Faroe
•Each bilateral FTA contains a Protocol on origin
Morocco
•All the Protocols on origin contain identical RoO
Albania
Former Yugoslav
Rep. of Macedonia
•Every time a modification in the RoO is needed, all
the Protocols need to be adapted.
Algeria
Tunisia
Serbia
Egypt
Lebanon
Jordan
Palestine
Israel
Syria
* 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.
Bosnia and
Herzegovina
EU
Turkey
Norway
Switzerland/
Lichtenstein
Montenegro
Iceland
Kosovo*
Rep. of Moldova
Albania
Former Yugoslav Rep. of
Faroe
The PEM Convention:
A single text on RoO,
which replaces each
Protocol in each FTA
Morocco
Algeria
Macedonia
Tunisia
Serbia
Egypt
Lebanon
Jordan
Palestine
Israel
Syria
New Matrix of PEM cumulation
(OJ C 111, 12.4.2014, p.7)
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 panEuro-Mediterranean zone of diagonal cumulation.
• Will allow accession of neighbouring countries in the panEuro-Mediterranean cumulation zone.
• Will create extended opportunities for cumulation
Other
EU neighbouring countries
Pan Euro Med
Convention
Lybia
Reciprocal
Preferences
Ukraine
Balkans
EU
Autonomous
Preferences
Meds –EFTA –Turkey
ATMs
XK
ATPs
MD
GSP countries
(Georgia)
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)
Partner
Signature
Notificatio
n
Entry into
force
Norway
15.06.2011
09.11.2011
01.01.2012
Switzerland
15.06.2011
28.11.2011
01.01.2012
Lichtenstein
15.06.2011
28.11.2011
01.01.2012
Iceland
30.06.2011
12.03.2012
01.05.2012
Albania
27.06.2011
05.03.2012
01.05.2012
EU
15.06.2011
26.03.2012
01.05.2012
Former Yugoslav Republic of
Macedonia
15.06.2011
14.06.2012
01.08.2012
Montenegro
15.06.2011
02.07.2012
01.09.2012
Serbia
12.11.2012
01.07.2013
01.09.2013
Jordan
07.07.2011
16.08.2013
01.10.2013
Faroe Islands
15.06.2011
09.09.2013
01.11.2013
Turkey
04.11.2011
04.12.2013
01.02.2014
20
Partner
Signature
Notification Entry into
force
Egypt
09.10.2013
23/04/2014
Palestine
18.09.2013
(June to be confirmed)
Tunisia
16.01.2013
(June to be confirmed)
Israel
10.10.2013
(June to be confirmed)
Morocco
18.04.2012
Algeria
05.10.2012
Bosnia and Herzegovina
24.09.2013
01.06.2014
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.
21
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
II. e. - The PEM Convention – on-going work
Communication on "A New Response to a Changing Neighbourhood"
May 2011. http://ec.europa.eu/world/enp/pdf/com_11_303_en.pdf
"The rapid implementation of the new Convention on Pan-EuroMediterranean preferential rules of origin will be one important
element for the partners in the South."
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
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.
The revision of ‘PEM’ rules of origin
SIMPLER
more RELAXED
responding to ECONOMIC
REALITIES
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
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
28
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)
29
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.
30
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.
31
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
18.11.2010
32
A. GSP Reform - Background
Legal framework of the GSP rules of origin
• Commission Regulation (EU) No 1063/2010 of 18.11.2010
amending Regulation (EEC) No
measures of the customs code)
2454/93
(implementing
• Official Journal No L 307 of 23.11.2010, p. 1
• Entered into force on 01.01.2011
33
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)
34
B. GSP Reform - Main changes
1) Simpler origin determination criteria
2) Applicability of cumulation of origin
3) Other features in general provisions
35
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.
36
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.
37
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).
38
C. GSP Reform – Modernisation of RoO
1) 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
39
C. GSP Reform – Modernisation of RoO
1) Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
change of tariff heading or sub-heading
Suppression of additionnal mandatory rules
40
C. GSP Reform – Modernisation of RoO
1) Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
Until 2011
41
C. GSP Reform – Modernisation of RoO
1) Appropriate rules for determining the acquisition of origin
Simpler origin determination criteria
A specific working and processing operation
42
C. GSP Reform – Modernisation of RoO
1) 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 »
43
C. GSP Reform – Modernisation of RoO
1) 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
44
C. GSP Reform – Modernisation of RoO
1) 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.
45
C. GSP Reform – Modernisation of RoO
1) 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
46
C. GSP Reform – Modernisation of RoO
1) 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.
47
C. GSP Reform – Modernisation of RoO
1) 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
48
C. GSP Reform – Modernisation of RoO
1) 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;
49
– any documents that confirm that the conditions set out above have been met.
C. GSP Reform – Modernisation of RoO
1) 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 75-2 CCIP)
Reflect the reality of the economic sector.
Vessels conditions which allow fishery products to be
considered as originating or not, are simplified.
50
C. GSP Reform – Modernisation of RoO
1) 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
51
C. GSP Reform – Modernisation of RoO
1) 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
52
Tolerance in value and in weight in rules of origin.
How does it work?
Tolerance in value
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
Price 5 $
Price 3 $
Price 3 $
Price 5 $
Product 1 Cocoa
paste 1803 10 00
Product 2
White sugar
1701 99 10
Weight 30 kg
Weight 75 kg
Final product
Weight 100 kg
Price 10 $
Chocolates not
containing alcohol
1806 90 19
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
If price for materials of
Ch 17 in the world market
increases, it becomes
more difficult to meet the
rule of origin.
53
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 $
Price 3 $
Price 5 $
Product 1 Cocoa
paste 1803 10 00
Product 2
White sugar
1701 99 10
Weight 75 kg
Weight 30 kg
Final product
Weight 100 kg
Price 10 $
Chocolates not
containing alcohol
1806 90 19
30 kg at price of 3$ → all sugar can be nonoriginating (30 kg < 40% of 100 kg weight →
the rule is met)
30 kg at price of 5$ → all sugar can be nonoriginating (30 kg < 40% of 100 kg weight →
the rule is met)
Compliance with rules of
origin is unaffected by price
fluctuations of raw materials;
weight is more objective and
easier to monitor
54
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…)
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.
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
Spinning of natural
fibres
or
Extrusion of man-made
fibres combined with
spinning
or
Twisting combined with
gimping
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
POSITION OF PEM PARTNERS
Position 1
Current PEM
ex Chapter 62 Articles of
apparel and
clothing
accessories, not
knitted or
crocheted;
except for:
Status quo
Manufacture PEM Rule
from yarn
to be kept
Position 2
Position 3
Double transformation
with options
Weaving combined
with making-up
or
Making-up preceded by
Printing (as standalone
operation)
Single transformation
(with options or not)
Manufacture from
fabric (+ dyeing)
Or
Manufacture from
materials of any
heading, except that of
the product
or
Or
Manufacture in which
Making-up preceded by the value of all the
Printing (as standalone materials used does
operation) or by
not exceed 70% of the
dyeing (as standalone
ex-works price of the
operation)
product
59
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
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.
A general balance
List rules
Rules of
Origin
Tolerance
Cumulation
• Unit B3 – Origin of goods
• European Commission
DG Taxation and Customs Union
• TAXUD-UNIT-B3@ec.europa.eu
•
http://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/preferential/index_en.htm
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