WCO KNOWLEDGE ACADEMY FOR CUSTOMS AND TRADE 2014 Rules of Origin July 2014

1. The Regional Convention on pan-Euro-Mediterranean preferential rules of originA 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) Conceptandbenefits • c) State ofplayofratificationprocess • d) New accession • e) On-goingwork 3) Revision of Rules oforigin • The PEM Conventionandthe GSP reform (2003-2011) • Presentationofthe 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-Mediterraneanpreferentialrules of origin With 2 appendixes: • General rules for the definition of the concept of originatingproducts • Special provisions http://new.eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2013:054:FULL

6. 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

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

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

9. II. a. – General presentationAppendix I of the regional Convention • A Regional Convention conceivedfor 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 • Cumulationconcept: "whatisyoursismineandwhatismineisyours" • Tool ofregional integration/enhancedsourcingpossibilities 9

10. 40% max non-originating PEM cumulation 1.000 € EU Morocco Turkey 4.000 € Tunisia 1.000 € 10.000 € Russia 2.000 €

11. Manufacture from yarn SwimsuitHS 61 12 Knitted fabricsHS 60 05 EUR-MED or Invoice declaration EUR-MEDPO Switzerland« no cumulation applied » 2 Jordan Switzerland 3 1 SW EUR-MED or Invoice declaration EUR-MEDPO Jordan« Cumulation applied with Switzerland » Egypt Man-made staple fibres SH 5503 Export withoutworking 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

13. SAP cumulation (Stabilisation and Association Process) – 7 partners: EU, TR, 5 Western Balkan partners • PEM cumulation - 16 parties: • EU, TR, Faroe Islands, EFTA States, Mediterranean Countries • 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 FTAslinking all /some of the Members • Eachbilateral FTA contains a Protocol on origin • All the Protocols on origincontainidenticalRoO • Every time a modification in the RoOisneeded, all • the Protocolsneed to beadapted. Faroe * 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. Rep. of Moldova Morocco Albania Algeria Former Yugoslav Rep. of Macedonia Tunisia Serbia Egypt Lebanon Syria Israel Jordan Palestine

15. EU Turkey 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

16. New Matrix of PEM cumulation (OJ C 111, 12.4.2014, 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 createextendedopportunities for cumulation

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

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)

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.

22. II. d. - Accession of the countries of the Eastern Partnership • The EU NeibourhoodPolicy: • 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." • Accessionto PEM Conventionoffered in DCFTA: • Ukraine, • Georgia, • Moldova

23. 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."

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. 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 18.11.2010

33. A. GSP Reform - Background Legalframework of the GSP rules of origin • Commission Regulation (EU) No 1063/2010 of 18.11.2010 amendingRegulation (EEC) No 2454/93 (implementingmeasures of the customs code) • Official Journal No L 307 of 23.11.2010, p. 1 • Enteredinto force on 01.01.2011

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 • Simplerorigindeterminationcriteria • Applicability of cumulation of origin • Otherfeatures in general provisions

36. 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.

37. 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.

38. 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).

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 rulefor chapter 44 with a threshold of70 % 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 Simpler origin determination criteria Until 2011 • Appropriate rules for determining the acquisition of origin

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 betweenthe 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 countryand 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 authoritiesof 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 controland 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 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.