PEM Rules of Origin (2026 Update): How the Revised Pan-Euro-Mediterranean System Cuts Costs and Simplifies Trade – Key Changes for 2026 Compliance

Struggling with complex trade rules, rising costs or uncertain tariff treatments? The upgraded Pan-Euro-Mediterranean (PEM) Trade Framework can help your business simplify compliance, reduce duties, and strengthen regional supply chains across Europe, North Africa and the Middle East. This guide explains how the modernised PEM Rules of Origin work, what changes take effect in 2025–2026, and how companies can leverage the framework for a competitive advantage.

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What is the Pan-Euro-Mediterranean (PEM) Trade Framework?

The Pan-Euro-Mediterranean (PEM)Trade Framework is an agreement on Preferential Rules of Origin among a group of countries spanning Europe, North Africa, and the Middle East. These rules determine when goods qualify for reduced or zero tariffs. The PEM system:

• Harmonises origin rules across the region.
• Allows Origin Cumulation (combining production across multiple PEM countries).
• Facilitates integrated regional supply chains.
• Reduces the cost of cross-border trade.

The PEM Convention: Legal Framework and Key Rules

The “Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin” ( PEM Convention), is the legal framework that governs the system. It was initially adopted in 2012 .

In 2023, PEM contracting parties have upgraded the convention in particular with Modernised Rules of Origin. The objective was to make the rules more flexible and business-friendly. 

The new and modernised rules came into effect on 1st January 2025 with a full implementation on 1st January 2026. The 2023 update introduces simpler, more flexible rules meant to support SMEs and large manufacturers alike.

Which Countries Are Part of the PEM Trade Framework?

The PEM network covers over 40 markets linked through a web of free trade agreements enabling preferential access.

Region	Countries
European Union (EU)	Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden
Faroe Islands	Faroe Islands
EFTA States	Switzerland, Norway, Iceland, Liechtenstein
Mediterranean	Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia, Türkiye
Western Balkans	Albania, Bosnia and Herzegovina, North Macedonia, Montenegro, Serbia, Kosovo
Eastern Europe	Georgia, Moldova, Ukraine

UK, Brexit and PEM

Under the UK-EU Trade and Cooperation Agreement (TCA), origin can only be built using inputs from the UK and the EU. This system, known as bilateral cumulation, excludes materials from other PEM countries.

As a result, manufacturers in the UK cannot count inputs from non-EU PEM countries toward Rules of Origin when exporting to the EU.

However, the UK government is considering the UK accession to the Convention. In 2025, a consultation was organised to collect evidence to seek business input on the opportunities and risks that might flow from joining PEM.

Modernised Convention: 2025 – 2026 Major Changes for Rules of Origin

The Modernised Convention delivers some trade facilitation measures for businesses such as:

• Higher tolerance threshold for non-originating materials (i.e., materials not originating in the region) raised from 10% to 15%. 
• Simplification of product-specific rules, including removing some cumulative requirements and making them more aligned with actual industrial processes (especially for textiles).
• Full Origin Cumulation: for most products (except textiles), enabling manufacturing operations to be split among multiple PEM countries while retaining origin status.
• Duty drawback: there is the possibility to repay duties on imported components for most products, which helps exporters remain competitive. 
• Simplified certification of origin: removal of the EUR-MED certificate and introduction of electronic certification. The validity of the proof of origin goes from 4 months to 10 months in the new convention.

2025 Transition Period: Old vs New Rules

The new Modernised Rules came into effect on 1st January 2025. 2025 is transition period during which, both the 2012 rules and the 2023 revised rules may apply depending on bilateral implementation.

• Some bilateral agreements can operate under the original rules (2012 rules) in parallel with the new rules (2023 rules) depending on ratification and national implementation. 
• Some countries (e.g., Morocco, Tunisia, Israel, Algeria, Lebanon, Egypt, Palestine) have not yet ratified the revised Convention. They therefore continue to use the 2012 rules until they complete ratification.
• Businesses can choose between the 2012 and 2023 Rules Of Origin (if both are available), based on their supply chains. This dual system allows for a smoother transition and minimises disruptions.
• Proof of Origin: The EUR.1 certificate and Supplier Declarations must specify which rule version applies i.e. whether they are issued under the 2012 original rules or the 2023 revised rules.
• If the version of the Rules of Origin applied is not specified on the documentation, by default, it is considered that the original version has been used to determine the origin of the good.
• The process of ratification and implementation is compiled in a Matrix that is regularly updated. The Matrix shows when cumulation available, which agreements apply and which version is applicable. being regularly updated.

2026: Full Implementation of Revised PEM Rules

As of 1 January 2026, the Pan-Euro-Mediterranean (PEM) Trade Framework will undergo a final and decisive shift with the full implementation of the revised 2023 rules of origin, marking the end of the transitional period that began in 2025.

2026 PEM Rules of Origin

• From 1 Jan 2026 onward, the transitional provisions for many agreements expire, and the revised PEM rules(i.e., the modernised origin rules) apply for agreements creating a unified legal framework for trade in the region. (They are marked with “R” in the matrix).
• From this date, most bilateral relations that adopted the revisions will operate exclusively under the revised PEM modernised, unified rules. They will replace the previous dual system that allowed businesses to choose between the 2012 and 2023 Rules of Origin.
• This requires some reworking for businesses: when switching to the revised rules, existing rule assignments (for origin) must be reassessed under the new rules.

Customs Documentation Changes (2026 onward)

• Under the new regime: movement certificates EUR-MED and invoice declarations EUR-MED are no longer required. Only remain the EUR1 and Origin Declaration.
• Electronic Certification: The PEM Convention introduces electronic certification of origin, simplifying customs formalities and reducing paperwork. Its implementation will depends on countries introduction of the technology.
• The new modernised framework simplifies administrative burden quite a lot for businesses using the PEM preferences.

Wider Trade & Policy Context: CBAM & Brexit

Carbon Border Adjustment Mechanism (CBAM)

The EU Carbon Border Adjustment Mechanism (CBAM) is expected to become fully operational in 2026. This could:

• Increase costs for carbon-intensive imports
  • CBAM will impose a “carbon price” on certain imported goods based on their embedded emissions, which could affect PEM trading partners who export carbon-intensive goods into the EU. 
• Offset tariff savings gained under the PEM system
  • If PEM origin rules become more favorable, the cost of carbon could offset some of the gains for certain goods.
• Impact competitiveness in certain sectors
  • Metals, cement, fertilisers, chemicals and related goods.  

Sectors Outlook for 2026

Winners

• Textiles & Apparel
  • Fuller cumulation and simplified product-specific rules
  • Supports cross-border production and regional garment value chains (e.g., yarn in North Africa + finishing in the EU Europe)
• Electronics & light manufacturing
  • More flexible sourcing under higher tolerance and cumulation ease.
  • Fewer origin restrictions allowing wider supplier options.
• Agri-food (lightly processed)
  • Faster, simplified origin documentation.
  • Lower compliance barriers for regional exporters.

Mixed / At-Risk Sectors

• Basic chemicals, cement, steel, fertilisers
  • CBAM may outweigh tariff gains.
• Automotive (complex supply chains)
  • Gains from cumulation.
  • But requires careful re-mapping of origin due to complex product-specific rules.

Three Supply Chain Scenario for 2026 PEM Implementation

1. Smooth adoption (Baseline)
   •  Most partners implement revised PEM rules.
   • Uptake of digital proofs grows.
   • Moderate but steady increase in regional trade flows. 
2. Fragmented cutover (probable in pockets)
   • Some partners ratify late.
   • Temporary confusion over rule applicability.
   • Higher volume of customs corrections and audits.
3. Regulatory offset (CBAM + environmental measures constrain gains)
   • Carbon costs reduce net benefits of tariff preferences.
   • Firms in carbon-intensive sectors see margin compression.

Top Opportunities for Businesses

• Strategic tariff savings
  • Revised PEM rules expand eligibility for reduced tariffs, unlocking direct cost reductions.
• Supply chain optimisation through cumulation
  • Split production steps flexibly across PEM countries without losing origin status.
• Margin Recovery
  • Combine non-originating inputs with regional materials using the 15% tolerance threshold.
• Administrative Simplification
  • Electronic origin proofs reduce lead times and documentation errors.
• More Products Qualify for Preferential Tariffs
  • Simplified rules bring previously ineligible goods into scope.

Key Risks to Manage Early

• Not all countries implement simultaneously
  • If a PEM country has not ratified the modernised convention by the end of 2025, it may not be able to use diagonal cumulation with countries that apply the revised rules. In those cases, products that rely on inputs from that non-ratifying country might no longer qualify as “originating,” which means they could lose access to preferential tariff rates where cumulation is required.
  • Diagonal cumulation can only work when all participating countries follow the same set of rules of origin (or are grouped under the same application system). If a country has not ratified the new convention, this alignment is not guaranteed. As a result, cumulation, and the tariff benefits that depend on it, may not be available for trade flows involving that country.
• Incorrect rule assumptions
  • 20212 vs 2023 rules may differ. Always verify the bilateral “matrix” before shipping.
• Legacy documentation still used by staff or brokers
  • Phase out EUR-MED documents that are no longer valid.
• Electronic certification of origin not always available.
  • The Electronic certification depends on technical and administrative capacity in all countries. Check before shipments.
• CBAM overshadowing tariff gains
  • The combination of origin benefits and CBAM costs may shift trade flows in unpredictable ways. Tariff preference may not deliver a net benefit if carbon pricing exceeds savings.
• Origin determination errors
  • Many product-specific rules changed so it is necessary to audit products with high-volume transactions to ensure compliance.
  • UK Exporters: Be aware that Penalties for errors in UK Proof of Origin have been introduced in March 2024.

Arrange a quick call to explore mapping your supply chain under revised PEM rules.

2026 Watchlist

• Ratification progress and matrix updates 
  • Check the EU PEM “matrix” and national customs notices. 
• Customs rulings and audit trends
  • Possible (expected) spike of customs audits and corrections early 2026, watch for patterns and appeal decisions. 
• CBAM scope and carbon price movements
  • Product coverage and carbon price estimates affects competitiveness.
• Supply chain disruption linked to transitional expiry

Immediate Action Checklist

• Re-map origins for top products
  •  Confirm whether the revised rules (not the old transitional rules) apply for the supplier pair as of 1 Jan 2026. If assignments change, quantify tariff and paperwork impact. 
• Update ERP and customs workflows 
  • Prepare to accept electronic statements of origin and REX data; ensure your customs agent supports electronic proofs and the new validity periods (proof validity extended under revised rules).
• Register as Exporter ( REX) where relevant
  • Where schemes exist, registered exporters can self-declare origin and it reduces steps and speeds exports. 
• Re-negotiate sourcing contracts
  •  To capture cumulation benefits, add clauses allowing multi-country production to preserve origin and share savings. 
• Model CBAM exposure 
  • For carbon-intensive goods: estimate the CBAM price per tonne of embedded CO₂ on your EU sales and compare with tariff savings from origin preference.
• Train teams 
  • Ensure compliance, sales, ops and customs agents understand the revised rules.
    

Department-Specific Actions

Customs & Compliance

• Check products classification is up to date.
• Re-check which rule set applies for each supplier/customer country pair (revised vs old).
• Update internal origin dossiers to reflect revised RoO (higher tolerance, new cumulation).
• Validate your proofs of origin processes shift to electronic statements where possible.

Procurement

• Identify where new rules allow mixed sourcing across multiple PEM countries.
• Re-open contracts with suppliers to exploit full cumulation and benefit from new cost savings.
• Flag products that may lose origin due to transitional expiry and need reconfiguration.

Sales & Commercial

• Recalculate landed cost advantages for key markets using revised rules.
• Communicate simplified documentation and faster clearance times to customers.
• For carbon-intensive goods, integrate CBAM cost forecasts into pricing strategy.

Internal Process Update Needed

Area	Required Update
ERP / Customs Software	Enable electronic origin statements
Supplier Contracts	Include multi-country cumulation rights
Origin Calculation Templates	Replace old RoO with revised PEM rules
Training	Q1 refresher training for all operational teams
Documentation	Sunset EUR-MED where obsolete

While the PEM system offers substantial benefits: lower tariffs, flexible sourcing, stronger supply chains, it remains complex. The technical nature of Rules of Origin, intensive documentation requirements and frequent audits mean companies must plan carefully.

Those who master the rules and optimise for cumulation gain a significant competitive advantage in 2026 and beyond.

📄 Need Help Preparing? Start with the (free) PEM 2026 Compliance Checklist

A step-by-step checklist to safely adapt to the 2026 rules:
✔ Products remapping
✔ Documentation updates
✔ Rule-version verification
✔ Broker readiness
✔ Go-live assessment

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💡 Need Bespoke Guidance?

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 Book a quick, informal chat to walk through your specific challenge and see how to simplify compliance, cut costs, and strengthen your supply chain.

Frequently Questions Asked: PEM Rules of Origin