circular economy,  compliance e AEO,  free trade agreement

PEM an update

Dicembre 14, 2023 /

One of the more important FTA of the EU is, of course, the Pan-Euro-Mediterranean (PEM) Convention on preferential rules of origin. This agreement established: a) a common framework of rules of origin; b) cumulation. It involves from a side the EU and from the other one the following  PEM Contracting parties: the EU, Switzerland, Norway, Iceland, Liechtestein, Egypt, Tunisia, Algeria, Morocco, Israel, Palestinian Authority of the West Bank and the Gaza Strip, Syria, Lebanon, Jordan,  Türkiye, the Faroe Islands, the Republic of Moldova, Georgia, Ukraine, Serbia, Montenegro, Bosnia Herzegovina, North Macedonia, Albania.

On 7 December 2023, the PEM Joint Committee adopted the new and modernised rules of origin that aims to increase trade between inside the mentioned free trade area.

Although the rules of origin will be fully implemented as of 1 January 2025 these are already valid for the following trade relationships: EU with

Albania, Faroe Islands, Georgia, Iceland, Jordan, Palestine, Norway, Switzerland, North Macedonia, Moldova, Serbia, Montenegro, Kosovo.

Any economic operator can export/import goods claiming for the preferential origin status if it is compliant with the rules of origin and other kind laid down by the protocol of origin.

In particular,  these new rules according to TAXUD guidance on transitional PEM rules of origin (V1.0 – 16 August 2021) are-gradually- replaced by other ones more relaxed, trade-oriented and flexible.

The main points are:

  • New definition of the tolerance; it this written that: “….the general tolerance for the PEM Convention is established at 10%. The transitional set of rules introduced by Appendix A sets a 15% tolerance for agricultural goods, as well for the other products (except for products falling within Chapters 50 to 63 of the Harmonised System)…”. It means that he tolerance in the processing of a product, it is not allowed to exceed the maximum percentage of non-originating materials in the list rule;
  • Diagonal/full cumulation; in the guide is stated that: “…— A preferential agreement exists between the contracting parties participating in the acquisition of originating status and the contracting party of destination; — The goods acquired their originating status by applying identical rules of origin. Article 8 (3) provides that the proof of origin issued by application of cumulation in accordance with Article 7 must include the following statement in English: “CUMULATION APPLIED WITH (name of country or countries in English)…”. On the 10.02.2023 the EU Commission published the notice (2023/C 51/01) “…concerning the application of the transitional rules of origin providing for diagonal cumulation between the applying Contracting Parties in the pan-Euro-Mediterranean (PEM) zone…” which provides the new matrix about the diagonal cumulation with the PEM transitional rules…” In particular, this matrix shows the countries: – which accepted the transitional rules of the PEM protocol; -with which it is possible to calculate the preferential origin with the diagonal cumulation.
  • Accounting segregation: about this point, the new PEM framework requires is based on this topic “…the purpose of accounting segregation is to provide a facilitation to producers allowing them to physically store together in the same place originating and non-originating materials. Under the accounting segregation method fungible originating and non-originating materials may be stored together without those originating materials losing their originating status. At the date of determining the origin of the product, the economic operator must hold sufficient quantities of originating materials, as reflected in the stock records (recorded on the basis of the general accounting principles applicable in the exporting party), to produce that originating product…”.
  • Priciple of territoriality: it means that that goods eligible for a preferential origin must be produced within the territory of the parties to a free trade agreement.
  • Non alteration; goods must be transported directly from one contracting Party’s territory to another. However, under non-alteration however, the splitting of consignments and operations for the adding or affixing marks, labels, seals or any other documentation to ensure compliance with specific domestic requirements are allowed in addition to those of direct transport. In the guidelines it is stated that “…The splitting of consignments may take place in a third country where carried out by the exporter or under his responsibility, provided that the goods remain under customs supervision in the country of transit. The requirements for the non-alteration rule are deemed to have been met unless the customs authorities have reasons to believe the contrary. In such cases importers may be required to provide evidence of compliance, such as: a) contractual transport documents such as bills of lading; b) factual or concrete evidence based on marking or numbering of packages; c) a certificate of non-manipulation provided by the customs authorities of the country(ies) of transit or splitting or any other documents demonstrating that the goods remained under customs supervision in the country(ies) of transit or splitting; or d) any evidence related to the goods themselves…”
  • Prohibition of drawback of, or exemption from, customs duties: Drawback is the waiver or refund of such duties on materials used in the manufacture of a product for exportation. In the new PEM framework, the general principle of the prohibition of drawback applies to materials used in the manufacture of any product has been left.

From a practical point of view, in the EU the economic operators (SME) have to collect from their suppliers the long term declarations with the mention “ PEM Convention and/or transitional rules “

The EUR.1 movement certificate in the box n.7 has to mention “Transitional rules” and in the declaration of origin “according to the transitional rules of origin”.

Under the PEM rules it is possible to find out: – rules of origin proponing the circular economy: – rules that can benefit of the AEO status and in general of a trade compliance approach.