Diagonal cumulation

 

Article 3 (“Cumulation of Origin”) and Article 4 (“Cumulation of Origin with Other Countries”) of the rules of origin protocol of the EU-Colombia, Peru, Ecuador Trade Agreement.

Diagonal cumulation allows materials (e.g. parts, components) originating in a third country (not a party to the free trade agreement) to be considered as originating in a party to the free trade agreement where the final product is produced.

Diagonal cumulation however applies provided some conditions are met:

  • each party to the free trade agreement has a preferential trade agreement with that third country , within the meaning of Article XXIV of GATT 1994;
  • an arrangement is in force between the party applying cumulation and that third country on adequate administrative cooperation;
  • In most EU preferential trade agreements, the production must go beyond insufficient operations in the country of last production;
  • In some EU preferential agreement, the preferential trade agreements must contain identical origin provisions before diagonal cumulation can be applied (e.g. PEM Convention).

Example of EU-Switzerland-Albania diagonal cumulation under the PEM Convention

An operator in Switzerland produces a machine using materials of EU origin and exports the final product to Albania. The final product will have Swiss origin as all necessary preconditions for diagonal cumulation have been met (agreements containing identical rules of origin between EU, Switzerland and Albania as well as publication of relevant matrix) and the materials used to produce the machine are already originating in the zone and have undergone more than insufficient operations.

Example of EU-South Africa diagonal cumulation under the SADC Economic Partnership Agreement

An operator in South Africa manufactures car parts (HS heading 8708) that are exported to the EU. The operator decides to import aluminium. Aluminium is a main element of the car part and represents more than 50% of the ex-works price of the final product. In case aluminium is originating from India (third country), the value-added criteria of the list rule would not be met because the operator would not bring enough added value in South Africa (40% maximum non-originating materials). However, under cumulation, the economic operator could decide to source aluminium from (and originating in) Mozambique, a partner under the SADC EPA. Aluminium would be considered as originating in South Africa and since the processing carried out there would go beyond insufficient operations, the finished product would obtain South African preferential origin when exported to the EU.

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