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Pan-Euro-Med cumulation

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					Pan-Euro-Mediterranean cumulation of origin
EU-Egypt preferential trade relations

Agenda
• Basic concepts of preferential rules of origin • Rules of origin of EU-Egypt Association agreement • Pan-Euro-Mediterranean cumulation

Preferential rules of origin
• Economic nationality of products • Based upon
- the location of the production - the conditions of the production

• condition for preferential tariff treatment

Definition of originating products
• Wholly obtained
– no imported materials

or • Sufficiently worked or processed
– from non originating imported materials (list rules)

Sufficient processing - criteria
• Change of HS Tariff Heading (CTH)
• Value percentage (% of ex-works price) • Specific process • Combination of criteria

Definition of cumulation of origin
• Criteria of sufficient processing do not need to be respected if materials are imported from a country with which cumulation is applicable.
• Materials imported from partner country considered as originating

Bilateral – diagonal cumulation
• Bilateral : materials are imported from country to which finished product will be exported.
– EU materials processed in EG for export to EU.

• Diagonal : materials are imported from country other than country to which finished product will be exported.
– TURK materials processed in EG for export to EU.

Conditions for diagonal cumulation
• existence of free trade agreements between the participating countries • identical rules of origin in all agreements
• notice published in the Official Journal

Why free trade agreements ?
Garments Romania

X
EUR.1

Egypt

EU

X

Egypt

•If no agreement Romania – Egypt, it has to be avoided that Romanian products are exported to Egypt through the EU. - circumvention of absence of Egypt-Romania agreement - WTO incompatible to grant preferences in Egypt to Romanian products without FTA

Why identical rules ?
• Assume RO for fabrics : (1) weaving in EUSwitz. agreement (2) spinning and weaving in EU-Egypt agreement
Fabric EUR.1 Switz
India yarn

Garment EUR.1 EC

MO

Fabric Egypt

Garment EC

MO

EU-Egypt protocol 4
• Applicable since 1 January 2004.
• Provisions on diagonal cumulation • Provisions on no-drawback

Protocol 4 : diagonal cumulation
• Art 4 • Diagonal cumulation with Algeria, Cyprus, Israel, Jordan, Lebanon, Malta, Morocco, Syria, Tunisia, Turkey, WBGS • not yet applicable as condition of identical rules of origin not fulfilled with any of the countries (nor by EU nor by Egypt)

Protocol 4 : no drawback
• If product exported under preference :
– duties must be paid on imported, third country materials used – duties paid on imported materials, may not be refunded upon export

• No duties to be paid on materials originating in the zone (e.g. EU)

Purpose of no drawback rule
• To create a level playing field between economic operators throughout the zone • equal treatment of products imported from preferential country and products produced locally

Example level playing field
• TV made for Egyptian market from Japanese parts Duties on JP parts
Egyptian assembly Japanese parts EU EUR.1 assembly Duties on JP parts Egyptian market Egyptian market Duty free in 2007

Exporter’s Choice
• 2 options
– apply for preferential proof of origin and pay duties on imported parts OR – not apply for preferential proof of origin and not pay duties on imported parts

• decision depends upon preferential margin on exported product and rate of duty on imported materials

Example 1. exporter ’s choice
Refrigerator assembled in Egypt /Value 100 €
Duties paid on Jap. parts Japan 39€

Egypt

EUR.1

EC

Duty free access to EC 5 % duty on JP parts (1,95 €)

Example 2. exporter ’s choice
Refrigerator assembled in Egypt / value 100€.
Duties NOT paid on Jap. parts

Japan 39€

Egypt No EUR.1

EC

MFN rate in EC (1.9 % - 1.9€) no duty on JP parts (1,95€)

Article 15 of protocol 4
• prohibition of drawback • § 6 : suspended for 6 years (until 31 December 2009) • §7 : as from 2010
– prohibition of drawback for agri products – flat rate of 5% for industrial products – flat rate of 10% for textiles

Pan-Euro-med Cumulation
• Creation of diagonal cumulation zone between 42 countries
– European Union (25 members) – Morocco, Algeria, Tunisia, Egypt, Israel, Palestinian Territories, Jordan, Lebanon, Syria – Iceland, Lichtenstein, Norway and Switzerland (EFTA) – Bulgaria and Romania – Turkey – Faroe Islands

Pan-Euro-Med cumulation
• creation of pan-euro-mediterranean free trade area • liberalisation of rules of origin will :
– increase possibilities for sourcing of raw materials – create new markets for raw materials – boost investments in the region

• harmonisation of rules of origin

Example 1 : textiles
• Garments are originating if obtained from yarn (weaving and making up in Egypt) • Cumulation allows to import fabrics.
Preference
Fabric Turkey

EU

Garment Egypt Preference Switzerland Preference Jordan

Example 2 : textiles
• Fabrics are originating if obtained from fibres (spinnig and weaving) • Cumulation allows to import yarn.
Yarn Egypt Fabric Turkey Yarn China No Pref.

Preference
Tunisia

Example 3 : Refrigerators
• Refrigerators (HS 8418) are originating if value non-originating materials does not exceed 25 % ex works price. • Cumulation allows to count parts from pan-EuroMed countries as local value
Japan 20 Turkey 15 EU Refrigerator Preference Egypt Jordan

Example 4 : preserved citrus fruit
• Preserved citrus fruit (HS 2008) is originating if fruit used is originating • Cumulation allows to import citrus fruit.
Citrus Egypt Preserved fruit Jordan Citrus Brazil No Pref.

Preference
EU

Example 5 : Cars
• Cars (HS 8703) are originating if value nonoriginating materials does not exceed 40 % ex works price. • Cumulation encourages to source materials in the zone
Egypt 15 USA 35

Cars Preference Morocco

EU

Prohibition of drawback
Current Protocol 4
• Bilateral trade
– suspension until 31/12/2009 – 5% or 10% duties as from 1/1/2010

Pan-Euro-Med • Bilateral trade
– no duties to be paid – not even after 1/1/2010

• Diagonal trade
– not possible because no identical rules

• Diagonal Trade
– 5% or 10% duties on nonoriginating materials from outside the zone

No-drawback – bilateral trade
Japan

Egypt

EUR.1

EC

CURRENT protocol Duties on Jap. parts ? - none until 31/12/2009 - 5% as from 1/1/2010

PEM protocol Duties on Jap. parts ? - none - permanently - not even 5% after 1/1/2010

No-drawback – diagonal trade
Turkey fabric Egypt Garment

EC

CURRENT protocol: No preferential access to EU !!

PEM protocol: - preferential access to EU - no duties on Turkish fabric

No-drawback – diagonal trade
Turkey fabric Accessories USA Egypt Garment

EC

CURRENT protocol: No preferential access to EU !!

PEM protocol: - preferential access to EU - no duties on Turkish fabric - 10 % duty on USA accessories

No-drawback on 3rd country materials
Refrigerator assembled in Egypt
Duties to be paid on Jap. parts CH Egypt Japan No duties to be paid on materials originating from PEM countries EUR.1 EC

State of play
• EU-MED agreements
– proposals for adoption of new protocol sent to all MED on 10 November 2005 – adoption : on date of receipt of reply – applicable : first day of the following month ( 1 december 05 / 1 January 06?)

State of play other agreements
• Pan-Euro-Med in force :
– – – – – – – – Tunisia-Turkey (1/7/2005) EU- Faeroe Islands ( 10/11/2005) Morocco – EFTA (1/3/2005) Lebanon - EFTA(1/1/2006?) Tunisia – EFTA (1/6/2005) Israel – EFTA (1/7/2005) European Economic Area (21/10/2005) Iceland-Faeroe Islands (31/10/2005)

• Pan-Euro-Med agreed or being negotiated :
– Morocco – Turkey (signed 7 April 2005) – Agadir (signed 02/2004) – Turkey – EFTA (adopted 15/5/2005)


				
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