Dr. Joshua Ebenezer, Principal Consultant, NuCov Facili-Trade, demystifies cumulation under Rules of Origin, offering actionable insights for Indian businesses to navigate Free Trade Agreements (FTAs) and unlock their trade potential in global markets.
Cumulation strengthens India’s trade networks by fostering regional supply chain integration
In the ever-changing landscape of global trade, Rules of Origin (RoO) are central to determining the eligibility of goods for preferential treatment under trade agreements. Cumulation, a mechanism within RoO, allows inputs from multiple countries to be treated as originating from one country, subject to certain conditions. This is particularly important for Indian businesses navigating Free Trade Agreements (FTAs), as it creates global competitiveness by reducing costs and encouraging supply chain integration.
Cumulation, a pivotal aspect of Rules of Origin (RoO), empowers producers to combine inputs from partner countries while retaining preferential treatment for final goods. It is classified into three types:
- Bilateral cumulation: Pertains to two countries in a trade pact. For example, under the India-UAE CEPA, Indian garment exporters can use fabric sourced from the UAE and still meet RoO criteria for preferential tariffs, as per Article 3.4.
- Diagonal cumulation: involves three or more countries in a regional framework. Under SAPTA, Indian textile exporters using Bangladeshi materials qualify for preferential treatment in Bhutan, supported by Article 7(2). This mechanism facilitates trade within the SAARC region.
- Full cumulation: Encompasses all production processes within participating countries. A potential India-ASEAN trade pact could enable manufacturers to use inputs from multiple ASEAN members while retaining preferential treatment for exports to markets like Japan.
India’s cumulation edge
Cumulation strengthens India’s trade networks by fostering regional supply chain integration. Agreements like SAFTA and the proposed BIMSTEC FTA open doors for leveraging shared resources. Article 5 of SAFTA, for example, promotes diagonal cumulation among member countries, driving export growth and regional collaboration.
With over 15 FTAs, including those with ASEAN, Japan, and Australia, India can utilise cumulation to cut costs and diversify sourcing. Article 4.1 of the India-Japan CEPA provides value-addition-based benefits, enabling manufacturers to source cheaper inputs and re-export finished goods competitively. This reduces production expenses while enhancing supply chain efficiency.
Cumulation is a game-changer for MSMEs. By sourcing cost-effective components from ASEAN under preferential terms, Indian manufacturers can reduce costs and boost competitiveness.
Implementation challenges
Despite its benefits, implementing cumulation poses challenges:
- Extensive documentation, such as origin certificates and invoices, can be overwhelming.
- Many businesses remain unaware of cumulation’s advantages, creating a knowledge gap.
- Differing RoO standards and technical requirements across partner countries complicate compliance.
Streamlining customs processes and introducing advanced verification systems are vital to overcoming these hurdles.
Strategies for Indian businesses
- Conduct training sessions through industry bodies like CII, FFFAI, WTI, FIEO, and ASSOCHAM to raise awareness.
- Adopt blockchain technology for seamless origin verification and compliance.
- Collaborate closely with customs authorities and policymakers to address procedural bottlenecks.
- Strategically utilise cumulation provisions to optimise sourcing and expand market access.
As India strives to strengthen its position in global trade, the effective use of cumulation can serve as a critical enabler, aligning with the nation’s vision of becoming a global manufacturing and export leader.
