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2020 ] RULE OF ORIGIN PROVISIONS : A MOVE TOWARDS PROTECTIONISM! A59

Most preferential trade agreements also specify types of operations that are
deemed to be insufficient in working or processing to confer origin. Typically,
they include :
(a) simple packaging operations, such as bottling, placing in boxes,
bags, and cases, and simple attachment on cards and boards;
(b) simple mixing of products and simple assembly of parts; and
(c) operations to ensure the preservation of products during transport
and storage.
The requirements act to ensure that these basic operations do not confer
origin even if the basic rule of origin, such as change of tariff heading, has been
satisfied. Several other typical features of the rules of origin of preferential trade
schemes can influence whether origin is conferred on a product and can hence
determine the effect of the scheme on trade flows. These are cumulation, toler-
ance rules, and absorption. The treatment of duty drawback and of outward pro-
cessing outside the free trade partners or preferential trade partners can also be
important.

Cumulation
The basic rules of origin define the processing that has to be done in the
individual beneficiary or partner to confer origin. Cumulation allows producers
to import materials from a specific country or regional group of countries with-
out undermining the origin of the final product. In effect, the imported materials
from the identified countries are treated as being of domestic origin in the coun-
try requesting preferential access. There are three types of cumulation : bilateral,
diagonal (or partial), and full. The most basic form, bilateral cumulation, applies
to materials provided by either of two partners of a preferential trade agreement.
In this case, originating inputs (i.e., materials) that have been produced in ac-
cordance with the relevant rules of origin and imported from the partner, qualify
as originating materials when used in a country’s exports to that partner. For
example, under the EU’s GSP scheme, the rule of origin for cotton shirts states
that origin is conferred to a beneficiary country if the shirt is manufactured from
yarn. Non-originating yarn may be imported, but the weaving into fabric, the
cutting, and the making up into a shirt must take place in the beneficiary. The
EU’s GSP scheme allows for bilateral cumulation so that fabric that originates in
the EU (that is, fabric produced in accordance with the rule of origin for fabric—
in this case, produced from the stage of fibers) can be treated as originating in the
beneficiary country. Thus, originating fabrics can be imported from the EU and
used in the production of shirts for export that will qualify for preferential access
to the EU. The EU, however, is often not the least cost supplier of inputs, and so
the benefits of this type of cumulation can be limited. If the extra cost of using EU
sourced inputs rather than the lowest-cost inputs from elsewhere exceeds the
available benefit from preferential access, cumulation will have no effect, and
there will be no improvement in market access.
Diagonal cumulation takes place on a regional basis. Qualifying materi-
als from anywhere in the specified region can be used without undermining
preferential access. In other words, parts and materials from anywhere in the
region that qualify as originating can be used in the manufacture of a final prod-
uct, which can then be exported with preferences to the partner country’s mar-
ket. Diagonal cumulation is widely used in EU agreements but is not applied by
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