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Future rules of origin for PEM countries

  • Fernanda Montani, Expert |

After several years of negotiations, the European Commission adopted on the 24 August 2020 a package of revised proposals that modernizes the rules of origin contained in the 20 bilateral free trade agreements concluded by the European Union (EU) with the countries in the Pan-Euro-Mediterranean (PEM) region, amongst others Switzerland.

These revised rules will be implemented by Switzerland, its EFTA partners, the EU, the countries of the Western Balkans, Turkey and most of the Mediterranean countries. They offer an alternative to current rules of the Regional Convention on Pan-Euro-Mediterranean preferential rules of origin (PEM Convention) and are implemented on a bilateral and transitional basis while waiting for the outcome of the amendment process of the Convention, that requires a unanimous vote by the contracting parties.

The future rules of origin are more business-friendly and better adapted to current business and trade needs. They will also enable further development of integrated supply chains and trade within the PEM area.

This revised package allows economic operators to benefit from modernized and more flexible origin rules making it easier for products to benefit from trade preferences, amongst others:
 

  • Simpler product-specific rules, such as the elimination of cumulative requirements, lower thresholds of local value added, new double transformation for textiles, multiple choice rule for chemicals;
  • Increased threshold of tolerance for the non-originating materials, from 10% to 15%;
  • Introduction of “full” cumulation, under which the manufacturing operations needed to acquire origin for most products can be split among several countries;
  • More flexible accounting segregation rules if using fungible materials;
  • Possibility of duty-drawback (repayment of duties on imported components) for most products. Exceptions apply to products classified under the HS Chapters 50 to 63 (textile and textile articles);
  • Simplified certificate of origin system, with only one type of proof of origin required (EUR.1 or origin declaration) and extended validity of proof of origin, from 4 to 10 months;
  • Non-manipulation rule that is more flexible than the current “direct transport” rule (the latter makes it very difficult for goods transiting a foreign country to maintain their preferential origin).

As far as Switzerland is concerned, the revision of the Convention and its bilateral transitional application must be approved by the Swiss Parliament and is subject to an optional referendum. If the revised rules pass, they can be implemented, in principle, on 1 July 2021.

During the transitional period, as of 1 July 2021, exporting companies will be able to use either the rules of the current Convention or the revised rules. However, they must first determine which rules they wish to apply.

Businesses affected by such free trade agreements should review their supply chain, current origin determination logic and customs administrative procedures, in the light of new rules to maximize productivity, minimize current customs duty exposure and reduce customs administrative costs.

We will be happy to provide you with expert advice and guidance in this area, as well as all aspects of customs law.

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