Taxation and Customs Union

The pan-Euro-Mediterranean cumulation and the PEM Convention

The system of Pan-Euro-Mediterranean cumulation of origin allows for the application of diagonal cumulation between the EU, EFTA States, Turkey, the countries which signed the Barcelona Declaration, the Western Balkans and the Faroe Islands. It is based on a network of Free Trade Agreements having identical origin protocols. Those origin protocols are being replaced by a reference to the Regional Convention on pan-Euro-Mediterranean preferential rules of origin (PEM Convention). A single Convention will facilitate the on-going revision of the PEM rules of origin aiming at modernising and simplifying them.

Pan-Euro-Med cumulation

The application of diagonal cumulation of origin within the Pan-Euro-Med zone is based on a network of Free Trade Agreements (FTAs), the origin protocols of which consist of identical rules of origin. For more details, see the arrangements list and the Commission notice containing the 'matrix' showing amongst which Contracting Parties diagonal cumulation can be applied.
The EU also published Explanatory Notes to the pan-Euro-Med origin protocols.

Detailed information about the pan-Euro-Med system of cumulation of origin is available in the User's Handbook to the rules of Preferential Origin used in the trade between the EU, other European countries and the countries participating to the Euro-Mediterranean Partnership .

The move to the PEM Convention

The protocols of rules of origin in FTAs between Parties to the pan-Euro-Med zone are being replaced by the rules of origin laid down in the Regional Convention on pan-Euro-Mediterranean preferential rules of origin (PEM Convention) published in OJ L54 of 26 February 2013.

The 23 Contracting Parties to the PEM Convention are:

  • the EU,
  • the EFTA States (Switzerland, Norway, Iceland and Liechtenstein),
  • the Faroe Islands,
  • the participants in the Barcelona Process (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine (This designation shall not be construed as recognition of a State of Palestine and is without prejudice to the individual positions of the Member States on this issue.), Syria, Tunisia and Turkey),
  • the participants in the EU's Stabilisation and Association Process (Albania, Bosnia and Herzegovina, the Republic of North Macedonia, Montenegro, Serbia and Kosovo (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.),
  • the Republic of Moldova.

Neighbouring countries or territories of Contracting Parties may apply to become a Contracting Party to the PEM Convention provided that they have a FTA in force, providing for preferential rules of origin, with at least one of the Contracting Parties. The Republic of Moldova applied for membership in July 2013 and became the 23rd Contracting Party on 1 September 2015.
Two Contracting Parties which have ratified the Convention and have a FTA amongst them can replace the protocol on rules of origin to that FTA with a new protocol on rules of origin referring to the PEM Convention. The website of the Council of the European Union gives access to a table showing which Contracting Parties have ratified the PEM Convention. The column 'Rules of origin/cumulation' of the arrangements list shows in which FTAs between the EU and other Contracting Parties the protocol on rules of origin refers to the PEM Convention.

The PEM Convention will ultimately replace the network of about 60 bilateral protocols on rules of origin in force in the pan-Euro-Med zone with a single legal instrument. The main objective of the PEM Convention is to allow for a more effective management of the system of pan-Euro-Med cumulation of origin by enabling the Contracting Parties to better react to rapidly changing economic realities. A single legal instrument may indeed be amended more easily than a complex network of protocols and should pave the way towards the long expected adaptation of the pan-Euro-Med rules of origin to the current market conditions.
The PEM Convention will also better integrate the participants in the European Union's Stabilisation and Association Process (the EU's SAP) into the Pan-Euro-Med system of cumulation of origin, by creating a single zone in which diagonal cumulation can apply. This step offers new trade opportunities. In particular, it allows for the application of diagonal cumulation involving at the same time the EU, EFTA States and participants in the EU's SAP.

Specific provisions

Diagonal cumulation

In addition to bilateral cumulation, diagonal cumulation applies within the pan-Euro-Med zone. This means that materials which have obtained originating status in one of the Contracting Parties may be incorporated in products manufactured in another Contracting Party without those products losing their originating status when exported to a third Contracting Party within the pan-Euro-Med zone.
Diagonal cumulation however only applies if a FTA is in place between all Contracting Parties concerned. This is called the ''variable geometry'' rule. Please check the 'matrix' to find out amongst which Contracting Parties diagonal cumulation can be applied.

Diagonal cumulation also covers industrial products of Chapters 25 to 97 of the HS originating in the Principality of Andorra and products originating in the Republic of San Marino.

In parallel, full cumulation is currently operated within the European Economic Area (the EEA comprises the EU, Iceland, Liechtenstein and Norway) and between the EU and Algeria, Morocco and Tunisia. The EEA countries apply full cumulation between them, the EEA being considered as a single territory, with a common "EEA originating status". They also apply diagonal cumulation with the other partner countries of the pan-Euro-Med zone. An important point is that EEA members can apply diagonal cumulation of origin also between themselves whenever it can confer preferential origin of an EEA country (in this case the declared origin will be the one of the country, not the EEA origin itself).

No-drawback rule
The "no-drawback" rule applies, in principle, in preferential trade within the pan-Euro-Med zone.
The protocols on rules of origin in FTAs between the EU, on the one hand, and Algeria, Egypt, Jordan, Morocco, Tunisia and Palestine, on the other hand, allow drawback in purely bilateral trade, meaning if no diagonal cumulation is applied and the product is not re-exported from a country of importation to any of the other countries of the zone.

Proof of origin
The originating status of a product is proved by either:

  • a movement certificate EUR.1 or EUR-MED issued by the customs authorities of the exporting country or
  • an invoice declaration or an invoice declaration EUR-MED made out by an approved exporter or by any exporter for a consignment consisting of one or more packages containing products whose total value does not exceed € 6 000.

Proposal for revised rules of Origin for the PEM convention

On 27 November 2019 the European Commission, acting as the Secretariat of the PEM Convention, chaired the 9th meeting of the PEM Joint Committee, to invite all the Contracting Parties to express their position on the formal adoption of the revised rules of origin of the PEM Convention, on the basis of the consolidated text circulated in October. 

However, the revised rules, which would increase flexibility on product specific rules in numerous sectors, and which would introduce other trade facilitation measures, could not be adopted in the Joint Committee in the light of the reservations expressed by some of the Contracting Parties.

The PEM Secretariat and the EU will continue having bilateral discussions with all Contracting Parties to examine possible ways to address outstanding issues/derogations and the next steps, given that the main objective is to complete the revision process so that the revised RoO of the Convention can be endorsed by all Parties.

Read more on the outcome of the 9th Joint Committee meeting on the revision of the PEM Rules

Next steps towards the application of the revised rules of origin

At a technical meeting held in Brussels on 5th February 2020 attended by representatives of those PEM Contracting Parties that has expressed an interest in starting to apply on a transitional basis the revised rules, a process has now been launched to introduce the revised rules in the bilateral origin protocols. The current interested parties are: Bosnia and Herzegovina, the European Union, Georgia, Iceland, Israel, Jordan, Kosovo* , Lebanon, Moldova, Montenegro, North Macedonia, Norway, Switzerland, Serbia, Turkey and Ukraine, plus the Secretariat of the European Free Trade Association (EFTA) and the Secretariat of the Central European Free Trade Agreement (CEFTA).

These rules will apply as rules alternative to those of the PEM Convention, that will continue to be in full application among all PEM Contracting Parties as done currently. The rules will be applied in a transitional way, pending the adoption of the revision of the PEM Convention. Their application will therefore be optional:

  • either economic operators from the Applying Contracting Parties that have introduced the revised rules into the bilateral protocols will be able to claim preferential treatment on the basis of these revised rules, or
  • economic operators can apply the current rules of the PEM Convention, depending on their business needs and preferences.

Participants to that meeting have expressed an interest in proceeding as quickly as possible, so that their economic operators are able to benefit from the modernised and more flexible and business-friendly rules as quickly as feasible. It is understood that the completion of this process is subject to its endorsement by the political authorities of all concerned parties, and with respect to two participants (North Macedonia and Turkey) to the satisfactory solution of some outstanding issues.

The next steps in the process will be the presentation by the Commission of proposals to the Council to amend the origin protocols contained in the bilateral agreements between the EU and the interested countries and their adoption by the Council, which is expected to be finalised before the summer. The relevant bodies under the bilateral agreements should then adopt the revised protocols as soon as the concerned contracting parties have completed the necessary internal procedures to give their consent. Before the revised rules enter into force, the Commission will issue detailed guidance on their application and arrange seminars to explain their functioning for the benefit of operators and customs. The revised rules will be more business-friendly and better adapted to the current business and trade needs, and will also be more aligned to the rules introduced in the most recent trade agreements concluded by the EU. The main improvements introduced are the following:

  • Regional cumulation of origin made more flexible (introduction of “full” cumulation for most products)
  • Possibility of duty-drawback for most products
  • More flexible and simpler product rules, for instance elimination of cumulative requirements, lower thresholds of local value added, new double transformation for textiles (more finishing operations confer origin), multiple choice rule for chemicals (chemical reactions confer origin)
  • Tolerance (thresholds of non-originating materials) increased, from 10% to 15% - Replacement of the “direct transport” rule with a “non-manipulation” rule
  • More flexible accounting segregation rules
  • Possibility - in the future and providing the Applying Contracting Parties agree - to replace origin certificates with origin statements by registered exporters, and to issue electronic origin certificates.

These rules will therefore set a new standard for the rules of origin applicable between the EU and its pan-Euro Mediterranean trading partners. They will also enable the further development of integrated supply chains and trade within the area, which accounts for about 60 % of the EU’s preferential trade, for the benefit of business and the economic development of the countries in the zone. The text of the revised Convention can be found in the annex to the Council Decision adopted by the Council on 25 November 2019 that endorsed the revised text of the PEM Convention.

Background

The pan-European cumulation system was created in 1997 covering the EC, the EFTA countries, the CEEC (Central Eastern European Countries) and the Baltic States. It was then widened to Slovenia and to industrial products originating in Turkey (1999).The system was also enlarged to the Faroe Islands.

In 2005, it was enlarged to the participants in the Barcelona Process resulting in the creation of a pan-Euro-Mediterranean cumulation system of origin (IP/05/1256). The initiative of creating a single PEM Convention, as an instrument promoting regional integration, was endorsed by the Euro-Mediterranean Trade Ministers during their meeting in Lisbon on 21 October 2007. It now includes the above mentioned partners, the Western Balkans participating in the EU's Stabilisation and Association Process as well as Georgia, Moldova and Ukraine.

*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