ARE WE AWARE OF THE REVISED PEM RULES OF ORIGIN?

In our article dated August 4, 2025, we asked, “Is legislation written to be incomprehensible?” Of course, it should be written to be understood.

Customs regulations have a ever-changing dynamic structure. Keeping track of the changes doesn't bother us. However, figuring out what the changes actually mean is truly exhausting.

One of the pieces of legislation that is difficult to understand is the Regulation on Preferential Rules of Origin within the Scope of Decision No. 1/2023 of the Joint Committee of the Regional Convention on Pan-European-Mediterranean Preferential Rules of Origin, published in the Official Gazette dated December 20, 2025, and numbered 33113. Actually, the Regulation is not that difficult to understand when you read it, but it is quite difficult to predict under what conditions and in what circumstances it will be applied, and what the impact of this change will be on taxation and the sector. However, it must be acknowledged that this Regulation is not a regulation designed by Turkish bureaucrats, but a reflection of an international regulation. 

The Ministry of Trade is aware of how problematic the results of the Regulation are. For this reason, it has also published an announcement regarding how the Regulation will affect our country. In fact, the announcement emphasized that efforts were made to extend the transition period but that no results were achieved. The announcement states: “With Decision No. 2/2024 taken by the PEM Joint Committee on December 12, 2024, the simultaneous application of the old PEM rules and the Revised PEM rules will end on December 31, 2025, and despite our country's efforts, no agreement has been reached on an extension after this date.”

What is Cross-Cumulation?

The origin of goods benefiting from preferential tariffs is determined according to the rules of origin set out in the agreement signed by the parties. In determining the origin of goods produced in more than one country, the total labor performed in the countries party to the FTA is taken as the basis. This is where origin cumulation comes into play.

Under a bilateral agreement, bilateral cumulation applies when the processing and work performed are taken into account in determining the origin of the goods. Cross-cumulation applies when the processing and work performed in more than two countries party to the agreement are taken into account. 

Cumulation allows products originating in one of the contracting countries to acquire the origin status of the other country without completing all the necessary processing and work required to obtain origin status in that country.

Turkey, within the scope of three cross-cumulation agreements, is associated with EU countries (Germany, Austria, Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Finland, France, Croatia, Netherlands, Ireland, Spain, Sweden, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, Greece), EFTA countries (Iceland, Switzerland, Liechtenstein, and Norway), the Faroe Islands, Mediterranean countries (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia), Western Balkan countries (Albania, Bosnia and Herzegovina, Macedonia, Montenegro, Serbia, and Kosovo), and Neighboring countries (Moldova, Ukraine, and Georgia), totaling 50 countries. Therefore, when importing goods, it benefited from taxation advantages on the total amount of transactions and labor performed in these countries. In addition to customs duties, additional customs duty exemptions were also granted for goods of this nature.

What are the Revised PEM Rules of Origin?

Regional Convention on Pan-European-Mediterranean (PEM) Preferential Rules of Origin; It has formed the backbone of preferential trade between North African and Middle Eastern countries bordering Europe and the Mediterranean. Due to some Contracting Parties failing to complete the internal approval process for the Revised Convention or failing to update their free trade agreements (FTAs) with the necessary dynamic reference clause, as of January 1, 2026, there will no longer be a single origin cumulation system in the PEM region. A dual structure will emerge:

1. Parties applying the revised PEM rules: Turkey, the EU, EFTA, and the Faroe Islands.

2. Parties remaining under the 2012 PEM Convention (or older bilateral protocols): Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia, Turkey.

As a single set of rules will apply to all bilateral relationships from 2026 onwards, Turkey will not be a party to the 2012 PEM Convention, which places it in Category 1. In other words, Turkey will only be covered by cross-cumulation with the EU, EFTA, and the Faroe Islands. In terms of preferential trade, the customs union between Turkey and the EU and the fact that the customs union is more advantageous mean that this method is predominantly used in trade with the EU. 

This situation will cause a significant and structural disruption that could affect supply chains, cumulation opportunities, customs control risks, pricing, corporate supply structures, and product design decisions.

Additional Customs Duty 

Today, an additional customs duty is applied to nearly 5,000 products. In addition to customs duties, there is also an exemption from additional customs duties on imports from countries with which Turkey has signed FTA agreements. Under the revised PEM Rules of Origin, goods that benefit from cross-cumulation and are granted an additional customs duty exemption will now be subject to both customs duties and additional customs duties.

Lifting of the Refund Ban

While there is a prohibition on reimbursement in the cross-cumulation system, this prohibition will remain valid only for textile products listed in Chapters 50-63 in the Revised PEM Rules of Origin. The prohibition on reimbursement is the requirement to collect taxes on inputs originating from third countries within the manufactured product. In our country, these taxes are collected under the name of compensatory tax during export. It is clear that this situation will provide a tax advantage in productions made under the new cumulation system.

Effective Date of the Regulation

The Regulation, which is the subject of our article, entered into force on the date of its publication, effective as of January 1, 2025. Transactions carried out during the 11 months and 20 days will naturally be evaluated under the Regulation. It has been determined that compensatory taxes paid under the aforementioned prohibition on reimbursement were incorrectly collected due to the subsequent publication of the Regulation. Naturally, it should be noted that exporters are entitled to reclaim compensatory taxes paid under this scope.

It should be emphasized that all situations applicable to the EU are also applicable to the UK.

On the other hand, according to the announcement made by the Ministry of Trade on December 25, 2025, inputs originating in Morocco, Egypt, Palestine, and Tunisia under the old rules may be subject to cross-cumulation under the “Transition Rules” for exports to the EU, provided that the final destination country of the goods is the EU.

In addition, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Georgia, and Palestine were added to the cumulation at the last minute.