COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(93) 259 final 
Brussels, 13 July 1993 
Proposal for a 
COUNCIL REGULATION (EEC) 
amending Regulation (EEC) No 636/82 establishing economic outward 
processing arrangements applicable to certain textiles and 
clothing products reimported into the Community after 
working or processing in certain third countries 
(presented by the Commission) 
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EXPLANATORY MEMORANDUM 
Council Regulation (EEC) No 636/82 of 16 March 1982 (*•) created economic 
outward processing arrangements applicable to certain textiles and clothing 
products reimported into the Community after working or processing in 
certain third countries. In the context of the application of these 
arrangements the annual quantities of compensating products which the 
beneficiaries of these arrangements have been allowed to reimport, were 
distributed until the end of 1992 by the competent authorities of each 
Member State within the limits of the annual quantities of compensating 
products whose reimportation the Member State concerned was allowed to 
authorize. 
As it has been outlined in the communications of the Commission on the 
completion of the Internal Market in trade in textile and clothing products 
(doc. 7006/92), as approved by the Council, the establishment of the 
Internal Market in 1993 has resulted in the creation of an area without 
internal frontiers comprising, inter alia, the free movement of goods and 
the elimination of disparities in import arrangements. 
It is therefore necessary to introduce the indispensable modifications to 
Council Regulation (EEC) No. 636/82 in order to ensure an implementation of 
the arrangements created by this Regulation at Community level. 
In order to achieve this objective, the Commission proposed in January 1993 
(COM(93) 10 final) a two-tier approach: 
- . As a first step, to be introduced by 1 January 1993, the existing 
national outward processing quotas would be replaced by Community 
quotas, open to those operators eligible under Council Regulation 
No 636/82 on a first come, first served basis. The competent 
authorities in Member States would continue to deliver prior 
authorizations to applicants. By means of an information system to 
be established between Member states and the Commission, they have to 
make sure that the allocated prior authorizations do not exceed the 
total annual quantities available. It will also be possible to 
reimport the compensating products in any Member state regardless of 
which Member State issued the prior authorization. 
(1) OJ No L 76, 20.3.19 82, p. 1. 
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- As a second step, to be implemented by the •nd of 1993 at the latest, 
the rules for implementation of Council Regulation No 636/12, in 
particular the admission of beneficiaries, which up to now has not 
been uniform in the different Member States, would have to be 
harmonised, other outstanding issue» like the management of the 14% 
derogation for third countries' fabrics/yarn are also to be 
addressed. 
In the court» of the discussion in the 113 committee of the Commission's 
proposal for the first step, it appeared that a large majority of Member 
States was not prepared to adopt the two-tier approach but preferred to 
proceed with a complete revision of Council Regulation No 636/t2 which 
would encompass all the necessary adaptations in order to ensure an 
implementation of the arrangements at community level in accordance with 
the objectives of the Internal Market. 
In order to achieve this objective, the Commission has decided to propose a 
comprehensive revision of Council Regulation No 636/82 which includes its 
proposal of January 1993 and addresses in particular the following 
elements : 
(a) The allocation of quantities available. Under the proposed new 
system, the allocation for applicants other than operators with past 
performance rights, would be done on a first come, first served 
basis, by maximum 'tranches', through the issue of prior 
authorizations. To this effect an information system will be set up 
between the Member States and the Commission in order to make sure 
that the allocated amounts do not exceed the total annual quantities 
available. 
(b) The concept of beneficiary and the relevant criteria. The criteria 
for obtaining the benefit of outward processing arrangements are not 
clearly defined in Council Regulation No 636/82. This has resulted 
in divergent interpretations and applications in Member States. The 
present proposal aims at defining more clearly those criteria. At the 
same time, past performance rights of operators will be preserved. 
They can, however, be reviewed with regard to those operators who 
have not been manufacturing in the Community for at least three 
years, when available quantities for newcomers do not prove 
sufficient. 
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(c) The notion of similar products. Under the existing regulation, 
operators seeking to obtain a prior authorization must in principle 
establish that they manufacture similar products. Regulation 
No 636/82, however, does not contain an operational definition of 
"similar products". It is therefore proposed to group the different 
categories of products into three groups of categories and to define 
similar products as "products falling within the same category or 
within the same group of cateqories". 
(d) The link between outward processing and production. The existing 
link between the benefit of outward processing arrangements and the 
level of domestic production needs to be more clearly defined. It is 
proposed, without touching the rights of legitimate past performers, 
that during the first nine months of each year, prior authorizations 
would only be granted by Member State authorities to those persons 
who during the preceding year had maintained a value of production in 
the Community of at least 50% of their total turnover. During the 
remaining three months, persons not meeting this condition but who 
maintain a significant production in the Community would also become 
eligible for allocation of quantities. 
(e) The 14% derogation. The application by Member States of the 
derogation which provides that up to 14% of fabrics going into 
outward processing operations can be of third country origin, if 
those goods are not sufficiently available wthin the Community, is 
not uniform. To eliminate the discrepancies, it is proposed to 
implement this derogation clause at the level of each individual 
beneficiary. A higher percentage of derogation would nonetheless be 
permitted in exceptional and economically justified cases on the 
basis of a decision taken in accordance with the procedure laid down 
in Article 12 of the existing Regulation, which governs the 
applicable rules on the management of the Regulation. 
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At the same time the proposal covers two issues which need to be addressed: 
(a) a technical adaptation of th»? list of textile products (categories) 
to which the Regulation applies in order to take into account 
modifications in the Combined Nomenclature which occurred since the 
entry into force of Council Regulation No 636/82; 
(b) inclusion of a provision in order to ensure a uniform application of 
the tariff exemption accorded to PECOs for reimports of 
textile/clothing goods after outward processing in those countries. 
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Proposal for a 
COUNCIL REGULATION (EEC) 
amending Regulation (EEC) No 6 36/82 establishing economic outward 
processing arrangements applicable to certain textiles and 
clothing products reimported into the Community after 
working or processing in certain third countries 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
and in particular Article 113 thereof, 
Having regard to the proposal from the Commission, 
Whereas the import arrangements in the Community for the textile and 
clothing sectors as regards certain third countries contain specific 
measures applicable to products resulting from outward processing 
operations; 
Whereas Council Regulation (EEC) No 636/82^), as amended by the Act of 
Accession of Spain and Portugal created economic outward processing 
arrangements applicable to certain textile and clothing products reimported 
into the Community after working or processing in certain third countries; 
Whereas the creation of the Internal Market of 1993 entails an area without 
frontiers in which in particular the free movement of goods will be 
ensured; whereas this entails, inter alia, the abolition of controls at 
internal frontiers and the elimination of disparities as regards import 
arrangements, as well as the option of reimporting compensating products 
into a Member State other than that in which the prior authorization was 
granted; 
(1) OJ No L 76, 20.3.1982, p. 1. 
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Whereas trade in textile and clothing products should be in line with the 
functioning of the said Internal Market, in particular as regards the 
application of the economic outward processing arrangements for textiles; 
Whereas the earlier regional outward processing quotas have been replaced 
as from 1 January, 1993 by a system of Community quotas not allocated 
between Member States; 
Whereas the competent authorities of Member States should continue to issue 
prior authorizations to applicants wanting to make use of outward 
processing, but in doing so should communicate to the commission the 
quantities requested in order to verify whether those quantities are 
available within the total limits established at Community level; 
Whereas quantities should be allocated by maximum tranches, and the 
applications for a new tranche should only be possible when the previously 
allocated tranche has been utilized by at least 50%; 
Whereas the criteria and conditions which Member state operators must 
observe in order to qualify under these arrangements are not at present 
applied uniformly throughout the Community; 
Whereas, therefore, the rules for implementation of these criteria and 
conditions have to be harmonized in order to allow access to outward 
processing under conditions common to the whole Community, especially in 
respect of the definition "beneficiary", the term of "similar products", 
the priority for manufacturers maintaining an important production within 
the Community and the derogation from the rule concerning the origin of the 
product exported for outward procèssing; 
Whereas the allocation of product quantities to each applicant should take 
account not only of the quantities available under the import arrangements 
established with regard to the particular product and third country 
concerned, but also of the bona fide status of the beneficiary as 
manufacturer and the efforts of the manufacturer to maintain production and 
employment within the Community of articles at the same stage of 
manufacture, while at the same t ime not reducing the quantities made 
available to and used by legitimate past beneficiaries; 
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Whereas in keeping with the objectives of this Regulation it is appropriate 
that the product quantities allocated to persons who have not manufactured 
similar products in the Community for more than three years should be 
reviewed at the end of each year in which available quantities for 
newcomers do not prove sufficient; 
Whereas for the purpose of ensuring an efficient and impartial management 
of the system, the distribution of outward processing quantities which have 
not been set aside to meet the applications of .persons with past 
performance rights should be effected on a first-come, first-served basis; 
Whereas, in view of Protocol No 1 on Textiles and Clothing products to the 
Europe Agreements and the Interim Agreements concluded between the 
Community and the Czech Republic, the Slovak Republic, Poland, Hungary, 
Bulgaria and Romania, it is appropriate that the scope of the application 
of the Regulation be extended to certain liberalized categories of products 
originating in those countries; 
Whereas it is necessary that the list of products to which this Regulation 
applies should be in conformity with the present classification of textile 
products (categories) based on the combined Nomenclature; 
whereas the present Regulation should not affect reimportations into the 
Community of products after their working or processing in third countries 
pursuant to prior authorizations issued before the date of its application; 
Whereas an efficient Community administration of the outward processing 
arrangements requires close cooperation between the Member States and the 
Commission, 
HAS ADOPTED THIS REGULATION: 
Article 1 
Regulation (EEC) No 636/82 is amended as follows: 
1. In Article 1(1), the words "50 to 62 of the Common Customs Tariff" 
are replaced by the words "50 to 63 of the Combined Nomenclature". 
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2. At the beginning of Article 1(3) the following words are inserted: 
"Without prejudice to the third paragraph of Article 11." 
3. In Article 1(4) the following subparagraphs are added: 
"(c) 'competent authority' means the authority in a Member State 
which is competent to <*pply the provisions laid down in the 
present Regulation, in particular the granting of prior 
authorizations. 
(d) 'similar products' are lefined as products falling within the 
same category or within the same group of categories as is 
listed in Annex I, which may be modified in accordance with the 
procedure laid down in Article 12." 
4. Article 2(2)(a) is replaced by the following text: 
"(a) that person must: 
- prove to the competent authority, when applying for his 
first prior authorization each year, that he has 
manufactured in the preceding year products which are 
similar to and at the same stage of manufacture as the 
compensating products in respect of which the application 
for the arrangement is made; 
- perform, within --he Community, the main production 
processes on those products (cutting, sewing, assembling, 
or knitting) on his own account, either in his or her own 
factory, or alternatively, in respect of some but not all 
of those production processes, in a factory of another 
manufacturer linked to him by a joint venture, by 
subcontracting, or by some other form of long-term 
cooperation contract; 
manufacture in the community those products for sale on the 
market." 
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5. In Article 2(2)(b) the second part of the sentence is replaced by the 
following text: 
"... operations within the quantities allocated by the competent 
authorities of the Member State where the application is made, and 
subject to the conditions laid down in Article 3." 
6. In Article 2(2)(c) the last sentence of the first subparagraph is 
replaced by the following text: 
"Such derogations may not be granted in respect of more than 14% of 
the total value of the goods(*) in respect of which the benefit of 
the arrangement was granted to the beneficiary during the previous 
year. In exceptional and economically justified cases the competent 
authorities, on the basis of a decision taken in accordance with the 
procedure laid down in Article 12, may agree to a higher percentage 
of derogation. 
(*) 'Total value of the goods" means: 
- in the case of the goods imported beforehand, their value 
for customs purposes as defined by Regulation (EEC) 
No 1224/80 (OJ No L 134, 31.5.1980, p. 1); 
in all other cases, the ex-factory price." 
7. In Article 2(3), the second sentence of the fourth subparagraph is 
deleted. 
8. Article 3 is replaced by the following text: 
"Article 3 
1. The Council shall establish at Community level the annual 
quantities of compensating products whose reimportation may be 
authorized under the specific import arrangements referred to in 
Article 1(3). 
2. The competent authorities shall distribute the annual quantities 
referred to in paragraph (1) above amongst the beneficiaries as 
defined in Article 2. 
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3. Without prejudice to Article 2(3) or paragraph (5) below, this 
distribution shall be such as to ensure that the objective of 
maintaining the industrial activity of the beneficiary in the 
Community, as laid down in Article 2(2)(a), is respected as 
regards both the nature of the products and their quantities 
expressed in physical units or added value. 
4. The annual quantities of compensating products shall be 
distributed among the beneficiaries on the basis of their 
demands presented in conformity with Article 4(2). 
The allocation will be effected by maximum amounts for each 
category and for each third country concerned. If a new 
application is submitted, additional amounts for each category 
and for each third country concerned may be allocated by the 
competent authorities to a particular beneficiary only when the 
previously authorized amount for that beneficiary has been 
actually utilized by at Least 50%. 
5. Each legitimate beneficiary shall be entitled to an amount equal 
to the total quantity of compensating products for each category 
and for each third country concerned for which it carried out 
outward processing operations in conformity with the provisions 
of the Regulation, during one of the two calendar years 
preceding the year of its application. Beneficiaries mentioned 
in this paragraph become eligible for allocations in accordance 
with paragraph (6) only when they have fully used their past 
performance rights. 
In addition, a legitimate beneficiary who waives his past 
performance rights in respect of a specific category and/or 
country becomes eligible to apply for an equivalent quantity in 
another category and/or country, in accordance with the first 
subparagraph of paragraph (6) (general rules for newcomers); the 
criteria generally to be applied in such cases shall be decided 
in accordance with the procedure laid down in Article 12. 
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6. The competent authorities shall allocate on a first-come, first-
served basis the quantities of compensating products which have 
not been temporarily set aside to fulfil the applications made 
under paragraph (5). 
During the first nine months of each year allocations shall be 
granted to those manufacturers who can prove that in the 
preceding year they maintained a production value in the 
Community of at least 50'* of their total turnover. 
During the remaining three months of each year those 
manufacturers who can prove that in the preceding year they 
maintained, in the Community, a significant production of 
similar products, in relation to the quantities requested, can 
participate in the distribution of the remaining quota. 
7. Where those beneficiaries referred in paragraph (5) do not use 
the total quantities to which they are entitled, the remainder 
of such quantities, but in any case not more than 10.5% of each 
total quantity(*), shall be added to the following year's 
quantities referred to in paragraph (6). 
8. At the end of each year in which available quantities of 
compensating products prove to be insufficient to satisfy the 
applications made under paragraph (6) consideration shall be 
given in accordance with the procedure laid down in Article 12, 
to the extent to which, and the way in which, allocations to 
those persons who have not manufactured similar products for at 
least three years have to be reduced. 
9. Provisions relating to the application of this Article shall be 
adopted in accordance with the procedures laid down in 
Article 12. 
<*) According to Article 4(2) of Annex XXIII of Council 
Regulation No 4136/36, which expired on 31 December 1992." 
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9. Article 4(1) is replaced by the following text: 
"1. Application of the arrangements contained in this 
Regulation is subject to the issue of a prior authorization 
by the competent authorities. 
In order to ensure that the allocated prior authorizations 
do not exceed the total annual quantities of compensating 
products established at Community level the competent 
authorities shall issue prior authorizations only upon 
confirmation by the Commission that there are still 
quantities available of the total Community quota for the 
category and the third country concerned, for which the 
quantities are requested by the persons concerned." 
10. Article 4(2)is deleted. 
11. Article 5(4) is replaced by the following text: 
"4. When granting prior authorizations the competent 
authorities must be satisfied that the level of employment 
in the factory oi factories of the applicant is not 
significantly affected." 
12. In Article 7, the first paragraph is deleted. 
13. In Article 8, the words at the end of paragraph (1) "by the 
Member state that issued the prior authorization for those 
products" are deleted. 
14. Article 8(2) is deleted. 
15. In the first and second paragraphs of Article 9, the words "of 
the Member State concerned" are deleted. 
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16. In Article 11, the second paragraph is replaced by the following 
text : 
"Council Regulation (EEC) No 2473/86 of 24 July 1986 on outward 
processing relief arrangements and the standard exchange 
system^*), as well as any provisions adopted for its 
application, shall not be affected by those arrangements. 
(*>OJ No L 212, 2.8.1986, p. 1." 
17. In Article 11 a third paragraph is added, as follows: 
"For the application of the provisions of Article 2(3) of 
Protocol No 1 on Textiles and Clothing Products to the Europe 
Agreement and the Interim Agreements between the Community and 
the Czech Republic, the Slovak Republic, Hungary, Poland, 
Romania and Bulgaria respectively, the products which are listed 
in Annex 2 and which originate in those countries in accordance 
with Protocol No 4 on Origin to the Europe Agreements with the 
Community, do not need to be subject to the arrangements or the 
specific measures referred to in Article 1(3) or the annual 
limits referred to in Article 2(2)(b). Prior authorizations for 
those categories of products shall be issued by the competent 
authorities after notification to the Commission of the 
quantities requested, and provided that all other conditions of 
this Regulation are fulfilled." 
18. The attached Appendix 1 becomes Annex 1 to the Regulation. 
19. The Annex is replaced by the attached Appendix 2 and becomes 
Annex 2 to the Regulation; and references made in the Regulation 
to the Annex become references to Annex 2. 
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Article 2 
The present Regulation shall not affect the reimportation into the 
Community of products after working or processing in third countries on the 
basis of prior authorizations issued before the entry into force of this 
Regulation. 
Article 3 
This Regulation shall enter into force on the seventh day following its 
publication in the official Journal of the European Communities. 
This Regulation shall be binding in its entirety and directly applicable in 
all Member States. 
Done at Brussels, For the Council 
The President 
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Appendix 1 
'ANNEX 1 
Groups of categories referred to in Article l(4)di 
Similar products at the same stage of manufacture are defined as products 
falling within the same category or within the same group of categories as 
listed below: 
1st group (Outerwear) 
categories 4, 5, 6, 7, 8, 14, 15/16, 17, 21, 26, 27, 28, 29, 73, 74, 75, 
76, 77, 78, 83. 
2nd group (Underwear) 
categories 4, 13, 18, 24, 28, 31, 6), 72, 78, 83, 86. 
3rd group (Other products) 
categories 10, 12, 68, 70, 72, 78, 33, 85, 87. 
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Appendix 2 
"ANNEX 2 
List of maximum processing levels referred to in Article 2(2)(d) 
Compensating products by categories(1) Maximum processing level 
Categories Operation 
"4, 5, 6, 7, 8, 10, 12, 13, 14, 15, 
16, 17, 18, 21, 24, 26, 27, 28, 29 
31, 68, 69, 70, 72, 73, 74, 75, 76, 77, 
78, 83, 85, 86, 87, 91." Processing from woven or 
knitted fabrics(2) 
(1) Categories refer to those listed in Annex 1 to council Regulation 
(2) However, the operation whereby fully fashioned knitwear is obtained 
from yarn may also count as a processing operation within the meaning 
of this Regulation, provided that the temporary exports of yarn 
authorized for this purpose in any year do not exceed 7% by weight of 
the total temporary exports authorized in the Community in the 
previous year under specific arrangements of the type referred to in 
Article 1(3). 
The Commission shall ensure that the limit of 7% as foreseen above 
will not be exceeded at the Community level. 
To this end the provisions of Article 4, paragraph 1, subparagraph 2, 
shall apply." 
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ISSN 0254-1475 
COM(93) 259 final 
DOCUMENTS 
EN 11 02 
Catalogue number : CB-CO-93-286-EN-C 
ISBN 92-77-56468-7 
Office for Official Publications of the European Communities 
L-2985 Luxembourg