Revision of the PEM Convention on Rules of

Revision of the PEM Convention on Rules of Origin Textiles TAXUD/1645234/14 20 th PEM Working Group Brussels, 22 May 2014 Guillaume DOREY DG Taxation and Customs Union TAXUD B 3 – Trade facilitation, Rules of Origin and International coordination Europe and neighbouring countries

Textile – origin provisions 1. Textile in rules of origin – State of play 2. Position of Contracting Parties 3. Other ways of relaxations

1. Textile in rules of origin – State of play • List rules in the current PEM • Tolerances • Cumulation (special provisions for certain areas)

1. State of play List rules – current PEM rules • Based on 'double-transformation' two significant processes of production undergone in PEM Members (provide higher value added) • Complementary nature and integrated production chain across pan-Euro-Med area • Double transformation generated a number of benefits for PEM area due to cumulation among PEM partners • Estimates: about 5 mio textiles and clothing workers employed throughout the area

1. State of play List rules – current PEM rules Clothing (examples) Textiles (examples) - extrusion of man-made fibers accompanies by spinning for synthetic yarns, or - weaving accompanied by making–up (including cutting), or - spinning of natural or man-made fibers accompanies by weaving, or - making–up preceded by printing accompanied by at least of two preparatory or finishing operations (such as scouring, bleaching, - a substantial printing operation accompanies with two preparatory or finishing operations (such as scouring, bleaching, mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47. 5% mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47. 5% (e. g. grey fabrics)

1. State of play Tolerances – current PEM rules • Specific tolerances expressed in Introductory notes: • Note 4 (definitions) • Note 5 (tolerance of 10% in weight for basic textile materials + definition of basic textile materials) • Note 6 (tolerance for textile materials of 8 % EXW price providing a CTH with the exception of linings and interlinings + tolerance for non-textile materials)

1. State of play Cumulation – current PEM rules • Cumulation for textile: full cumulation Areas of full cumulation: • • • EEA (European Economic Area – EU, IS, LI, NO) MA – TN – EU MA – TN – TR TN – EFTA (CH, IS, LI, NO) DZ – EU

1. State of play Example Full cumulation Pakistan yarn EEA Iceland weaving HS 62 05 Supplier's declaration for non-originating fabrics List rule for shirts: “Manufacture from yarn” List rule for fabrics: “Manufacture from fibres” Full cumulation EUR. 1 or Invoice declaration PO = EEA (EU) Takes into account the different working stages 1 - weaving from yarns 2 - making Norway

New challenges in textile and clothing sector • New business and industrial reality in the sector • Increasingly complex supply chains/diversity of production processes • Changing production techniques and production patterns (e. g. finishing sector with innovative technologies ) • Limited supply of originating fibres/yarns in terms of needed types, quantities, qualities • Fierce competition from many Asian countries

2. Positions of PEM partners • To keep the current rules (with relaxations or not) • Double transformation as a principle but with options • Single transformation (with or without conditions)

2. Positions List rules – current PEM rules clothing textiles - extrusion of man-made fibers accompanies by spinning for synthetic yarns, or - weaving accompanied by making–up (including cutting), or - spinning of natural or man-made fibers accompanies by weaving, or - making–up preceded by printing accompanied by at least of two preparatory or finishing operations (such as scouring, bleaching, - a substantial printing operation accompanies with two preparatory or finishing operations (such as scouring, bleaching, mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47. 5% [or without now] mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47. 5% (e. g. grey fabrics)

2. Positions List rules – Relaxations by certain partners Textile (examples merging different positions) - New wording with key working processes (options) for both yarn or fabric: - Extrusion + spinning/weaving - Extrusion + twisting/weaving - Twisting or/combined with - gimping/weaving Yarn dyeing + weaving Weaving + one specific operation (printing, dyeing, coating…) Printing (as standalone operation + value added criteria) - Dyeing + 2 finishing operations) + value added criteria - Dyeing (as standalone operation) - Clothing (examples merging different positions) New wording with key working processes for clothing - weaving accompanied by making–up (including cutting) - making–up preceded by printing (as standalone operation + value added criteria) - Dyeing + making-up - Specific rules for some products (ex: denim)

2. Positions List rules – Relaxations by certain partners clothing textiles - Single transformation based on: - CTH - Change from any heading - 30 % minimum of originating added-value

2. Positions Analysis chapter by chapter • Chapters 50 to 53 • Chapters 54 and 55 • Chapters 56, 57, 58, 59 • Chapters 60 and 61 • Chapter 62 Example: Chapters 50, 51, 52, 53 (Silk, Wool, Cotton, Other vegetable textile) Fabrics PEM Change in wording + CTH / Change from options any heading + dyeing

2. Positions Chapters 50 to 53 Chapters 50, 51, 52, 53 (Silk, Wool, Cotton, Other vegetable textile) Chapter rule + Fibres PEM (CTH) Change from any heading Yarns PEM Wording change + options CTH / Change from any heading Fabrics PEM Wording change + options CTH / Change from any heading + dyeing + ex 5003 (silk waste) with special rule needed?

2. Positions Chapters 54 and 55 (man-made, synthetics textile) Fibres PEM CTH Change from any heading Yarns PEM Wording change + options CTH / Change from any heading Fabrics PEM Wording change + options CTH / Change from any heading (chapter 55 only) + dyeing

Chapter 56 2. Positions Chapter 56 Wadding, felt and non-wovens (ouates, feutres et nontissés) + cordage and cables Chapter rule 5601 5602 PEM 5603 CTH Change from any heading Wording change + options CTH / Change from any heading Specific rules for non-woven products + by needle bunch 5604 PEM Wording change + options 5605 PEM Wording change + options 5606 PEM Wording change + options CTH / Change from any heading

2. Positions Chapter 57 (carpets and textile floor coverings) Of needleloom felt Of other felt other PEM PEM Wording change + options CTH / Change from any heading

2. Positions Chapter 58 (special fabrics – woven, tufted textile, tapestries…) Chapter rule PEM Wording change + options CTH / Change from any heading + dyeing 5805 (tapestries) 5810 (embroidery) PEM (CTH) PEM Wording change Change from any heading CTH / Change from any heading

Chapter 59 2. Positions Chapter 59 (textile fabrics – impregnated, coated, or laminated + textile articles for industrial use) 5901 PEM Wording change + options CTH / Change from any heading 5902 PEM Wording change CTH / Change from any heading 5903 PEM Wording change + options CTH / Change from any heading + dyeing 5904 PEM Wording change CTH / Change from any heading 5905 PEM Wording change + options CTH / Change from any heading + dyeing

2. Positions Chapter 59 (textile fabrics – impregnated, coated, or laminated + textile articles for industrial use) 5906 PEM Wording change + options CTH / Change from any heading 5907 PEM Wording change + options CTH / Change from any heading + dyeing 5908 PEM (CTH) Change from any heading 5909 -5911 PEM CTH / Change from any heading Wording change + options

2. Positions Chapters 60 and 61 (knitted or crocheted fabrics and clothing) Chapter rule 60 PEM Wording change + options Chapter rule 61 PEM Wording change CTH / Change from any heading + dyeing CTH (or single with transformation) or added 30% of originating value added-value Proposition of chaging the wording of « other » by « other (fullyfinished knitting or knitted to shape) »

2. Positions Chapter 62 (Articles of apparel and clothing accessories not knitted or crocheted) Chapter rule PEM Wording change + options + dyeing Ex 6202 Ex 6204 Ex 6206 Ex 6209 Ex 6211 PEM Ex 6201 Ex 6202 Ex 6203 Ex 6204 Ex 6205 Ex 6206 Ex 6209 Ex 6211 Manufacture from yarn or Making-up followed by a stonewashed operation provided that the value of all the materials used does not exceed 40% of the EXW price of the product Specific rule for denim Wording change + options (based on unembroidered fabric) CTH (single transformation) or 30% of originating added-value CTH (single transformation[+dyeing]) or 30% of originating added-value Manufacture from unbleached fabrics or Making-up followed by a stonewashed operation provided that the value of all the materials used does not exceed 40% of the EXW price of the product

2. Positions Chapter 62 (Articles of apparel and clothing accessories not knitted or crocheted) Ex 6210 Ex 6216 PEM Wording change + options CTH (single transformation[+dyeing]) or 30% of originating added-value 6213 6214 PEM Wording change + options (printing + based on unembroidered fabric) CTH (single transformation[+dyeing]) or 30% of originating added-value +dyeing 6217 PEM Change in wording CTH (single transformation[+dyeing]) or 30% of originating added-value

2. Positions Chapter 62 Position 1 Current PEM Position 2 Double transformation Status quo with options ex Chapter 62 Articles of Manufacture PEM Rule to Weaving combined apparel and from yarn be kept with making-up clothing or accessories, not Making-up preceded by knitted or Printing (as standalone crocheted; operation) except for: or Making-up preceded by Printing (as standalone operation) or by Dyeing (as standalone operation) Position 3 Single transformation (with options or not) Manufacture from fabric (+ dyeing) Or Manufacture from materials of any heading, except that of the product Or Manufacture in which the value of all the materials used does not exceed 70% of the ex-works price of the product

Chapter 63 2. Positions Chapter 63 (other made-up textile articles) Chapter rule PEM 6301 to 6304 PEM 30% of originating addedvalue Wording change CTH or 30% of originating added-value Manufacture from unembroidered fabric 6305 PEM Wording change CTH or 30% of originating added-value 6306 PEM Wording change + option for non woven process CTH or 30% of originating added-value 6307 PEM CTH or 30% of originating added-value 6308 PEM CTH or 30% of originating added-value

3. Other Ways of Relaxation • Modernization of rules for textile may go through different approaches: • List rules • Tolerance • Cumulation

3. Relaxations Tolerance (general provisions and Introductory notes) (see presentation on open questions) • Article 5(1) – General tolerance • Introductory notes (Notes [4], [5] and [6]) • Article 13 – provision on Duty Drawback • Article 14 – Principle of territoriality

3. Relaxations Tolerance Article 5(1) – General tolerance • State of play [15%] of the ex-works price → all other products except Ch. 50 -63 → specific tolerances (Introductory notes 5 and 6) • Discussion tolerances to be increased to the same extent and/or remove exclusion of textiles in general ex-works price tolerance

3. Relaxations Tolerance Introductory notes (see document TAXUD/1645189/14) Note [5] (definitions + printing and printing as standalone operation) Note [6. 1] (tolerance of 10% in weight for basic textile materials + definition of basic textile materials) Note [7. 1] (tolerance for textile materials of 8 % EXW price providing a CTH with the exception of linings and interlinings + tolerance for non-textile materials)

3. Relaxations Tolerance Article 13 – provision on Duty Drawback • See working document TAXUD/1261847/14 • Discussion CPs are invited to express their views on the principle and the potential impact

3. Relaxations Tolerance Article 14 – Principle of territoriality • Provision Working or processing outside the exporting CP can be disregarded' if added value ≤ [10%] of the ex-works price of the end-product Not allowed for products of Ch. 50 -63 • Discussion CPs are invited to express their views on the principle and the potential impact

3. Relaxations Cumulation Full cumulation could be considered by partners: • Step-by-step approach? • Bilateral approach? • Other? • General provision (to be included in Article 3)? • Combined with other relaxations?

Conclusion Revision exercise should strike the right balance between: List rules Rules of origin Cumulation Tolerance

• Unit B 3 – PANEUROMED – Origin of goods • European Commission DG Taxation and Customs Union • TAXUD-UNIT-B 3@ec. europa. eu • http: //ec. europa. eu/taxation_customs/customs_duties/rules_origin/preferential/ index_en. htm