Diagonal Cumulation

Diagonal cumulation is a feature of preferential rules of origin that lets producers in country A treat materials sourced from countries B and C as if they were domestic, provided all three are tied together by free-trade agreements with identical or compatible origin rules. It expands on bilateral cumulation (which only counts inputs from the single partner country) by creating a wider zone within which intermediate goods can move and still qualify for tariff preferences on the final product.

The best-known example is the Pan-Euro-Mediterranean (PEM) Convention, which entered into force in 2012 and binds the EU, EFTA states, Turkey, the Western Balkans, and several southern Mediterranean partners under a single set of origin protocols. A Tunisian textile manufacturer, for instance, can incorporate Turkish yarn and Norwegian dyes and still export the finished garment to the EU duty-free, so long as the relevant agreements between each pair of countries are in force and the product meets the applicable origin rule.

Three conditions typically must be satisfied for diagonal cumulation to work:

• Network of FTAs: each pair of countries in the cumulation zone must have a free-trade agreement in force.
• Identical origin rules: the protocols must use the same product-specific rules and definitions.
• Sufficient working or processing: the operation performed in the exporting country must go beyond minimal handling listed in the agreements.

Diagonal cumulation is narrower than full cumulation, where any processing carried out in the zone counts toward origin even if the inputs themselves would not qualify. It is broader than bilateral cumulation, which is the default in most stand-alone FTAs.

For trade policy analysts, diagonal cumulation matters because it shapes regional value chains: it encourages firms to source within the cumulation zone and can lock in production patterns. Brexit negotiations in 2020 highlighted this when UK negotiators pressed for PEM-style cumulation with EU and third-country inputs in the EU-UK Trade and Cooperation Agreement.