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Bilateral cumulation: is used in bilateral trade agreements and allows each member of the agreement to use products originating in the other without the final good losing its originating status. Goods produced from originating materials in one FTA country and further processed in the other, can then be exported back to the first country under preferential treatment. Without cumulation only the inputs originating in the exporting country could be counted towards the originating status.
Diagonal cumulation(also sometimes referred to as regional cumulation): works in the same way as bilateral cumulation but is applied in agreements with more than two members. As is the case with bilateral cumulation, diagonal cumulation can only be applied to goods originating in an FTA member country and further processed in another member country.
Full cumulation: allows cumulation to be applied between any number of countries to goods not originating in the FTA member country and processed in the FTA territory. Full cumulation allows cumulating origin-counting processing added across the FTA territory even when the initial input is not originating. Full cumulation is the most flexible type of cumulation.
Third party cumulation (also referred to as 3rd party, cross or extended cumulation): allows for any of the previous types of cumulation (most commonly bilateral and diagonal) between countries which are not linked by a trade agreement or are linked by a trade agreement with different rules of origin. It allows to use inputs from a third party country which is not a member of the applicable FTA and consider them originating provided that they meet the rules of origin under the relevant trade agreement. Cross cumulation is the most flexible type of cumulation of originating inputs and is often limited to certain tariff Headings, Subheadings and codes or to certain types of products only.
Countries A, B and C are linked by a trade agreement with diagonal cumulation. A company located in country A exports originating inputs to its subsidiary in country B. The inputs are further processed in country B and then sold to a client in country C. The goods are subject to a value added rule based on a 60% regional value content requirement. Without cumulation the subsidiary in country B could not cumulate the inputs from the parent company in country A with its added value. Diagonal cumulation under the A-B-C FTA allows the regional value in country A and B to be added together when the good is exported to country C.
Under the same scenario with full cumulation, a company in country A imports a non-originating product from outside the FTA territory and processes it to a degree which is not sufficient to confer origin under A-B-C FTA. It then exports it to its subsidiary in country B as non-originating product. The subsidiary processes the good further. If the cumulative regional value content added by countries A and B during the separate processing stages exceeds 60%, the good can be exported to a client in country C under preferential tariff as originating in the FTA territory.
Under the same scenario, where countries A and B and B and C are linked by two trade agreements with different rules of origin, third party cumulation can be applied. A company located in country A exports originating inputs to its subsidiary in country B under the A-B FTA. The inputs are further processed in country B and then sold to a client in country C. The goods are subject to a 60% regional value content requirement under the B-C FTA. Without cross cumulation the 60% threshold requirement needs to be fulfilled in country B without the ability to count inputs from country A towards the originating content. Cross cumulation under the two FTAs allows inputs from country A to be treated as originating under the B-C FTA under certain conditions specified in the agreement.
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