PEM Rules of Origin: The Revised Pan-Euro-Mediterranean Convention and What It Requires

The Pan-Euro-Mediterranean (PEM) preferential rules of origin system governs tariff preference across a network of more than 40 countries spanning Europe, the Mediterranean, parts of the Middle East and Eastern Europe. For businesses sourcing inputs or manufacturing goods within this network, the revised PEM convention that entered into force on 1 January 2025, with full implementation from 1 January 2026, changes the conditions under which preferential treatment is available, the documentation required to claim it, and the cumulation options through which regional supply chains can be structured.

This article sets out how the PEM system works, what the 2023 revisions change in practice, and what the transitional period means for businesses that are currently claiming preference under the existing rules or planning to do so under the revised ones. A PEM 2026 Compliance Checklist is available at the end of the article.

What the PEM Convention Is and How It Works

The Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin, adopted in 2012, is the legal framework that governs the system. It harmonises rules of origin across the PEM network and, critically, enables diagonal cumulation: the ability to treat originating materials from any country within the network as domestic inputs when incorporated into goods produced in another PEM country, provided the relevant bilateral agreements between the countries concerned are in force and apply the same rules.

Diagonal cumulation is the mechanism that makes regional supply chains economically viable within the PEM network. Without it, each bilateral agreement within the network would operate independently, and manufacturers would need to satisfy origin rules using only inputs from the two countries party to the specific agreement. Diagonal cumulation allows a manufacturer in Tunisia, for example, to incorporate originating fabric from Morocco and originating yarn from Turkey, and have the finished garment qualify as originating for export to the EU, provided the relevant bilateral agreements all apply the same version of the PEM rules.

The PEM network currently covers the following countries and territories.

The European Union: all 27 member states. EFTA states: Switzerland, Norway, Iceland, and Liechtenstein. Mediterranean partners: Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia, and Türkiye. Western Balkans: Albania, Bosnia and Herzegovina, North Macedonia, Montenegro, Serbia, and Kosovo. Eastern partners: Georgia, Moldova, and Ukraine. The Faroe Islands.

The UK, Brexit, and PEM

The United Kingdom is not currently a party to the PEM Convention. Under the UK-EU Trade and Cooperation Agreement, origin can only be built using inputs from the UK and the EU, known as bilateral cumulation. This means manufacturers in the UK cannot count inputs from other PEM countries toward their origin calculations when exporting to the EU, and vice versa.

The UK government conducted a public consultation in 2025 on potential accession to the PEM Convention. Accession would restore diagonal cumulation for UK manufacturers across the PEM network, but at the time of writing the UK accession remains prospective.

The 2023 Revisions: What Has Changed

The modernised convention adopted in 2023 introduces several changes that are material for businesses operating in the PEM network.

The tolerance threshold for non-originating materials has been raised from 10% to 15% of the ex-works price of the product. This means a higher proportion of non-originating inputs can be incorporated without invalidating origin status, provided the product-specific rule applicable to the goods is otherwise satisfied.

Full cumulation is introduced for most products, with the exception of textiles. Under bilateral cumulation, only originating materials from a partner country contribute to origin status. Under full cumulation, all processing operations carried out in PEM countries contribute to origin acquisition, regardless of whether the materials used are themselves originating. This significantly increases manufacturing flexibility for businesses with production steps distributed across multiple PEM countries.

The duty drawback restriction has been modified. Under the original convention, the no-drawback rule prohibited the refund of duties paid on non-originating components used in the production of preferential exports. The revised convention introduces a possibility of duty drawback for most products, improving the competitiveness of export operations that incorporate third-country inputs.

The certification framework has been simplified. The EUR-MED certificate and the EUR-MED invoice declaration are no longer required under the revised convention. Only the EUR.1 movement certificate and the origin declaration remain. The validity period of proofs of origin has been extended from four months to ten months. Electronic certification of origin is introduced, though its implementation depends on the technical and administrative capacity of each contracting party.

Product-specific rules have been simplified for several sectors, particularly textiles, where rules have been aligned more closely with actual industrial processes and some cumulative requirements have been removed.

The Transitional Period: 2025 and the Dual System

The revised rules entered into force on 1 January 2025, but 2025 is a transitional year during which both the original 2012 rules and the revised 2023 rules may apply in parallel, depending on the specific bilateral relationship between the countries concerned.

The reason for the parallel system is that the revised convention requires ratification by each contracting party to take effect in the bilateral relationships to which that party is a party. Several Mediterranean partners, including Morocco, Tunisia, Israel, Algeria, Lebanon, Egypt, and Palestine, had not completed ratification of the revised convention at the time of writing. In the bilateral relationships involving those countries, the original 2012 rules continue to apply until ratification is complete.

Where both rule sets are available for a specific bilateral relationship, businesses may choose between the 2012 and 2023 rules on the basis of which version is more favourable for their supply chain. This is not a permanent option: it is a transitional facility designed to minimise disruption during the ratification period.

The documentation obligation attached to this choice is specific. Proofs of origin, whether EUR.1 certificates or origin declarations, must specify which version of the rules was applied in determining the originating status of the goods. Where no version is specified, the default assumption is that the original 2012 rules were applied. This is a documentation requirement that applies to every shipment made under PEM preference during the transitional period, and failure to comply with it may result in the preferential claim being assessed under the wrong rule set.

The current state of ratification and the applicable rule version for each bilateral relationship is tracked in the PEM matrix published by the European Commission, which is updated regularly and should be consulted before any shipment where the applicable rule version is uncertain.

From 1 January 2026: Full Implementation

From 1 January 2026, the transitional provisions for most bilateral relationships that have adopted the revised convention expired. Those relationships move exclusively to the revised 2023 rules. The dual system that allowed businesses to choose between the 2012 and 2023 rules no longer applies to those relationships.

The practical consequence is that origin assignments made under the 2012 product-specific rules must be reassessed against the 2023 rules for all shipments made from 1 January 2026 under affected bilateral relationships. Where the product-specific rules have changed between versions, an origin determination that was correct under the 2012 rules may not satisfy the 2023 rules, or may satisfy them more easily, depending on the product and the specific change.

The documentation change is immediate. From 1 January 2026, EUR-MED certificates and EUR-MED invoice declarations are no longer valid for shipments under bilateral relationships operating under the revised convention. Businesses that have issued or accepted EUR-MED documentation must ensure their processes and those of their customs agents and brokers reflect this change from the effective date.

What This Means for Businesses Using PEM Preferences

Three categories of action follow from the 2026 implementation.

The first is a product-level reassessment. For each product currently shipped under PEM preference, the applicable bilateral relationship must be identified in the PEM matrix, the rule version confirmed as revised or transitional, and the product-specific rule under the applicable version checked against the current origin determination. Where the rule has changed, the origin determination must be updated before shipments are made under the revised rules.

The second is a documentation update. EUR-MED certificates and declarations must be phased out for affected bilateral relationships from 1 January 2026. Supplier declarations held on file that were issued under the 2012 rules must be reviewed to determine whether they remain valid under the revised rules, and renewed where they do not. The version of the rules applied must be specified on all proofs of origin.

The third is a cumulation reassessment. For businesses that use diagonal cumulation, the availability of that cumulation depends on all countries in the cumulation chain having ratified the revised convention and applying the same rule version. Where a country in the chain has not ratified, diagonal cumulation with that country under the revised rules is not available, and supply chains that rely on it must be reconfigured or the goods shipped under the 2012 rules where that bilateral option remains available.

For the evidentiary requirements that attach to preferential origin claims under the revised PEM rules, including supplier declarations, bills of materials, and the documentation of cumulation chains, the Preferential Origin Evidence Requirements article (in Related Articles below) sets out the detail. For the audit and verification mechanisms through which customs authorities challenge origin claims, the Rules of Origin Audit Risk article addresses what verification examines and why evidence gaps are the most common source of reassessment.

If you would like to assess your current PEM compliance position against the revised rules, feel free to reach out directly.

The PEM 2026 Compliance Checklist

A practical tool for businesses reassessing their PEM origin positions under the revised convention. Covers product remapping, documentation updates, rule version verification, and cumulation chain review.

Download the checklist →