The Regional Convention on pan-Euro-Mediterranean preferential rules of origin A remedy for the...

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 2014Rules of Origin

July 2014Guillaume DOREYDG TAXUD – Unit B3 Rules of origin

Content

1) Introduction2) 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 countrydepending 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-Euro-Mediterranean 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

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

6http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:054:0004:0158:EN:PDF

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:054:0004:0158:EN:PDF

Main principles criteria

7

Minimal operations

Tolerance rule

Sufficiently worked or processed products

Principle of territoriality

Direct transport rule

Drawback of customs duties

Wholly obtained products

Positive list

Strict

Allowed or prohibited

% in value or weight

with tolerance

List rules (Annex II)

Positive list


A general balance

Rules ofOrigin

List rules

CumulationTolerance

• 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


PEM cumulation

EU

Turkey

Morocco

1.000 €

10.000 €

1.000 €

40% max non-originating

Tunisia

4.000 €

Russia 2.000 €

SwimsuitHS 61 12

Knitted fabricsHS 60 05

EUR-MED or Invoice declaration EUR-MEDPO Jordan« Cumulation applied with Switzerland »

EUR-MED or Invoice declaration EUR-MEDPO Switzerland« no cumulation applied »

Man-made staple fibres

SH 5503

Korea

Switzerland

1SW

2

3

Tunisia

Egypt

4Export withoutworking

Manufacture from yarn

Jordan

Albania

EU

Former YugoslavRep. of Macedonia

Faroe

Bosnia and Herzegovina

Palestine Israel

Morocco

Jordan

Montenegro

Lebanon

Serbia

Algeria

Tunisia

Egypt

Syria

Turkey

Switzerland/ Lichtenstein

Iceland

Norway

• 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

•

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

Albania

* 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.

EU

Former YugoslavRep. of Macedonia

Kosovo*

Faroe


Palestine Israel

Morocco

Jordan

Montenegro

Lebanon

Serbia

Algeria

Tunisia

Egypt

Syria

Turkey


Iceland

Norway

How does PEM cumulation work?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.

Rep. of Moldova

Albania

EU

Former Yugoslav Rep. of

Macedonia

Kosovo*

Faroe


Palestine Israel

Morocco

Jordan

Montenegro

Lebanon

Serbia

Algeria

Tunisia

Egypt

Syria

Turkey


Iceland

Norway

The PEM Convention:A single text on RoO, which replaces each Protocol in each FTA

Rep. of Moldova

New Matrix of PEM cumulation (OJ C 111, 12.4.2014, p.7)

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014XC0412(03)&from=EN

• 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

II. b. – The PEM Convention: Concept and benefits

Ukraine

EU

GSP countries(Georgia)

Meds –EFTA –Turkey

Balkans

Aut

onom

ous

Pre

fere

nces

Rec

ipro

cal

Pre

fere

nces

ATMs ATPs

XK MD

LybiaPan Euro MedConvention

Other EU neighbouring countries

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 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 01.05.2012Former 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

21* 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.

Partner Signature Notification Entry into force

Egypt 09.10.2013 23/04/2014 01.06.2014

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


24.09.2013

Kosovo*

Lebanon

Syria

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-Euro-Mediterranean preferential rules of origin will be one important element for the partners in the South."

http://ec.europa.eu/world/enp/pdf/com_11_303_en.pdf

• 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

II. e. - The PEM Convention – on-going work

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

• 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. The revision of ‘PEM’ rules of origin

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 origin28

III. a. Presentation of the GSP reform

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


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


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


3) Commission’s draft regulation in October 2007 Commission’s revised proposal (November 2008) Agreement of the Member States (September 2010)

32

Commission Regulation (EU) N° 1063/2010 of 18.11.2010


Legal framework of the GSP rules of origin

•Commission Regulation (EU) No 1063/2010 of 18.11.2010 amending Regulation (EEC) No 2454/93 (implementing measures of the customs code)

•Official Journal No L 307 of 23.11.2010, p. 1

•Entered into force on 01.01.201133

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 changesFirst 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 changesSecond 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 changesThird 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

39


a maximum permitted content of non-originating materials

Introduction of an added value rulefor chapter 44 with a threshold of70 % of non originating materials


40


change of tariff heading or sub-heading

Suppression of additionnal mandatory rules



41

Simpler origin determination criteriaUntil 2011



42

Simpler origin determination criteriaA specific working and processing operation



43

Simpler origin determination criteriaThe 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

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 betweenthe groups I and III



45

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


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


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

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

Improvements in general provisionsNon 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


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.



51


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

Improvements in general provisions/list rules

Tolerance rule expressed as a percentage of weight for agricultural products

Example of product containing sugar


Tolerance in value and in weight in rules of origin. How does it work?

53

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 sugar1701 99 10

Weight 75 kg Weight 30 kg

Final product

Chocolates not containing alcohol 1806 90 19

Weight 100 kgPrice 10 $

3$ paid for white sugar = 30% of 10$ → all sugar can be non-originatingAfter 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.

Tolerance in value and in weight in rules of origin. How does it work?

54

Tolerance in weight

Price 5 $

Price 3 $

Price 3 $

Price 5 $

Product 1 Cocoa paste 1803 10 00

Product 2 White sugar1701 99 10

Weight 75 kg

Weight 30 kg

Final product

Chocolates not containing alcohol 1806 90 19

Weight 100 kgPrice 10 $

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 [...]

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)

Compliance with rules of origin is unaffected by price fluctuations of raw materials; weight is more objective and easier to monitor

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…)

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 fibresor extrusion of man-made fibres accompanied by spinning or twisting

Spinning of natural fibresorExtrusion of man-made fibres combined with spinningorTwisting combined with gimping

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


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-uporMaking-up preceded by Printing (as standalone operation)

or

Making-up preceded by Printing (as standalone operation) or bydyeing (as standalone operation)

Manufacture from fabric (+ dyeing)OrManufacture from materials of any heading, except that of the productOrManufacture in which the value of all the materials used does not exceed 70% of the ex-works price of the product

POSITION OF PEM PARTNERS

59

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 ofOrigin

Tolerance Cumulation

• Unit B3 – Origin of goods

• European CommissionDG Taxation and Customs Union

• [email protected]

• http://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/preferential/index_en.htm

http://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/preferential/index_en.htm

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