PAN EUROPEAN ORIGIN CUMULATION SYSTEM

Kemal YETİK
Customs Consultant

 Due to globalization in the world, regional integrations have also begun to increase. Free trade zones or customs unions are integrations formed in this way. While progress is being made towards "full integration", which involves unification as a single state in the European Union, "Brexit" and the "COVID-19 Pandemic" have come to the fore as factors that have led to a move away from these views.

While globalization leads to geometric increases in foreign trade volumes, it also causes the emergence of new foreign trade regulations and new customs concepts. The concept of "Cumulation of Origin" is a new concept that emerged in the light of these developments.

Cumulation is a mechanism that allows us to take into account non-originating inputs that may or may not be used in another country, or products produced or processes carried out in that country. There are types such as binary cumulation, diagonal cumulation and full cumulation.

The most important of the origin cumulation systems to which Turkey is a party is the PAMK (Pan European Cumulation of Origin) System. The Pan-European cumulation system, covering the European Union, EFTA countries, CEEC (Central-Eastern European Countries) and the Baltic States, was established in 1997. Later, PAMK was expanded in 1999 to include industrial products originating from Slovenia and Türkiye. Later, the Faroe Islands were also included in the system.

The system comes into play during free trade negotiations between the EU or cumulation parties, such as Turkey, and third countries.

When two independent countries negotiate a Free Trade Agreement (FTA) between themselves, it is decided that the products of these two countries will be imported to each other in a way that they will be exempt from customs duties or subject to low rates of taxes. So, the first thing to be decided is to determine the added value that will cause a product to originate in one of these two countries. For example, when country A and country B start FTA negotiations between themselves, the rules required to accept type X goods as originating from these two countries are determined. The first rule is that the goods of type

However, as a result of globalization, countries relying on economies of scale can use inputs originating from more than one country in the production of final products. In this case, it will be necessary to determine the added value required for a good to be considered as originating from country A, or the workmanship or processes that give originating status to be applied to non-originating inputs. In our example, we will use a rule that refers only to the value added rate. In this case, we will need to write a rule as follows: "The product obtained as a result of manufacturing using non-originating inputs where the value of all inputs does not exceed the % of the ex-factory price of the product is considered to be originating from country A or B." It is possible to write this rule in reverse. A rule can also be written as follows: "If the added value reaching E of the ex-factory price of the product obtained as a result of manufacturing using non-originating inputs occurs in country A or B, this product is deemed to have originated in country A or B."

While things were easier in FTA negotiations between two countries, rules of origin could become more complicated in negotiations between integrations such as the EU and other countries (for example, between South Korea). PAMK System brought a solution to this. In these negotiations, the EU stated that “in order to call a product EU origin, we must take into account the production made in each of our member countries. Therefore, in determining the added value based on the ex-factory price of a product, the added values ​​produced in each member country will be cumulatively reflected in the final product.” In this context, in the example we gave above, when it is said that "In order for product It is concluded that "in Italy, adding value added at rate E means that cumulative value added at rate E is added to the final product." Therefore, this product is traded as EU origin in trade between South Korea and the EU.

In recent years, approaches that give up on global integration and emphasize introversion tendencies reminiscent of the "Closed Economy Model" have brought rules of origin and certificates of origin back to the fore. Since Turkey has introduced Additional Customs Duty (IGV) and Additional Financial Obligation (EMY) practices, apart from the Customs Duty rates determined by the Common Customs Tariff, it requires us to apply the PAMK rules more carefully.

SOURCE:

europa.eu website

“www.ec-europa.eu” web page

C. Ministry of Commerce web page

Free Trade Agreements to which Turkey is a party

QUESTIONS AND ANSWERS

Question 1. What does PAMK System mean?

Answer: PAMK is the short name of “Pan European Cumulation System of Origin”. This origin cumulation system includes the European Union, EFTA countries, CEEC (Central-Eastern European Countries), Baltic States, Slovenia, Turkey and the Faroe Islands.

Question 2. For a good to originate from a country, must 0% of it be produced from that country's inputs?

Answer: is no. Undoubtedly, a product with 0 inputs belonging to that country is considered a product originating from that country. However, the percentage of added value added to a product in a country is determined by agreements such as the Free Trade Agreement, which will be considered as originating from that country.

Question 3. What motivates businesses to use inputs produced in more than one country?

Answer: The global economy encourages businesses to use inputs produced in more than one country. Because customs duty rates on global foreign trade have been reduced, non-tariff barriers have been reduced, and regional integrations have increased. For this reason, inputs have begun to find prices at the global level based on economies of scale. Thus, since the inputs are supplied from other countries instead of the country that produces the final product, the final product can be released to the market at more affordable prices.

Question 4. By what criteria is the origin of goods whose inputs are produced in more than one country determined?

Answer: Basically, in free trade agreements, the origin of goods is determined according to two principles. Firstly, it will be necessary to determine the workmanship or processes that give originating status to be applied to non-originating inputs of a good. In this case, this workmanship and process will be recorded individually for each item in the relevant STA. Secondly, in order for a good to be considered as originating from country A, the added value added to the product in that country will be determined.

Question 5. How is the added value rule to be added to the product written?

Answer: The first rule can be written as "The product obtained as a result of manufacturing using non-originating inputs where the value of all inputs does not exceed the % of the ex-factory price of the product is considered to be originating from country A or B." Or the rule can be written as "If the added value reaching E of the ex-factory price of the product obtained as a result of manufacturing using non-originating inputs takes place in country A or B, this product is deemed to have originated in country A or B."