Understanding Cumulation in Rules of Origin for India.

Cumulation in Rules of Origin (ROO) refers to the practice where inputs from multiple countries involved in a free trade agreement (FTA) can be combined and still meet the origin criteria for products to benefit from preferential tariffs.

The concept of Cumulation in Rules of Origin (ROO) refers to a mechanism in international trade agreements that allows products to benefit from preferential trade terms, even if parts of the product are sourced from different countries, provided that those countries are part of the same trade agreement.

In the context of India, cumulation enables the country to aggregate or "cumulate" the origin of materials or parts sourced from multiple countries with which India has trade agreements, and still qualify for preferential treatment under those agreements. This plays an important role in expanding trade by allowing more flexibility in sourcing and manufacturing while adhering to ROO standards.

How Cumulation Works in India's Trade Agreements:

Bilateral Cumulation:

• India can source materials from a partner country and still count those materials as Indian-origin, as long as both countries have a trade agreement that allows for cumulation.
• For example, under the India-Sri Lanka Free Trade Agreement (ISLFTA), if a product is manufactured in Sri Lanka using Indian-origin materials, it can still qualify for preferential treatment under the ISLFTA rules.

Regional Cumulation: 

• India can benefit from regional cumulation if it is part of a larger regional trade agreement, such as the South Asian Free Trade Area (SAFTA) or ASEAN-India Free Trade Area (AIFTA). Under such agreements, products that are produced in any member country using materials from other member countries are considered to have "originating" status.
• For instance, materials sourced from ASEAN countries and processed in India can qualify for duty-free or preferential tariff treatment under the ASEAN-India FTA.

Diagonal Cumulation:

• This allows countries within certain trade agreements to consider inputs from any country in a specific network of agreements. For example, under the India-ASEAN Comprehensive Economic Cooperation Agreement (CECA), if a product is made in India using raw materials from ASEAN countries (such as Vietnam or Thailand), the product can qualify for preferential access to ASEAN markets.
• Diagonal cumulation generally requires that the countries involved have signed agreements with each other, ensuring the ROO are harmonized across those countries.

Full Cumulation:

• This form of cumulation permits the use of inputs from multiple countries within a specific trade agreement, without having to meet strict local content requirements, thereby making it easier to meet the origin criteria.
• India could potentially benefit from full cumulation within agreements like the Regional Comprehensive Economic Partnership (RCEP), if such an agreement were finalized and ratified.

Key Benefits of Cumulation for India:

1. Increased Flexibility in Sourcing: It allows Indian manufacturers to source materials from multiple countries without losing the preferential treatment under FTAs. This is particularly important for industries that rely on a global supply chain, such as electronics, textiles, and automotive.
2. Boosts Export Potential: By making products eligible for preferential access to larger regional or bilateral markets, cumulation helps Indian products qualify for better tariff rates, thereby increasing India's export competitiveness.
3. Enhanced Regional Integration: Cumulation encourages deeper regional integration and helps create a more robust supply chain within trade blocs. This can lead to increased collaboration and economic growth within South Asia, ASEAN, and other Indian trade partners.
4. Cost Efficiency: Manufacturers can reduce costs by sourcing raw materials from countries where those inputs are cheaper, while still qualifying for preferential tariff treatment.

Challenges:

1. Complexity in Implementation: Cumulation requires alignment of ROO across various trade agreements, which can be administratively complex and challenging to track.
2. Stringent Local Content Rules: While cumulation offers flexibility, the underlying ROO may still require a certain percentage of local content, which could pose challenges for industries that rely heavily on imported raw materials.
3. Limited Scope: Not all trade agreements may allow cumulation, and the rules may differ across regions or countries. This can limit the effectiveness of cumulation in some cases.

Conclusion:

Cumulation in ROO is an essential tool in enhancing India's trade competitiveness and integration into regional and global supply chains. By allowing the use of materials from multiple countries in a trade agreement, India can increase its exports and expand access to preferential markets. However, the complexity of maintaining consistent ROO and ensuring compliance with various agreements remains a challenge.