Diagonal cumulation of origin as the EU’s institutional incentive mechanism for promoting international trade and business

Abstract

In this paper we explore the effects of a diagonal cumulation of origin as the EU’s Common Commercial Policy (CCP) incentive mechanism that affects the intraregional trade and transaction cost structure of firms engaged in cross-border business operation. The research explores how firms should frame their crossborder physical flows of goods and the configuration of their value-adding processes for taking advantage of diagonal cumulation of origin. The empirical analysis is based on an in-depth case study of effects of the ‘SAP+ diagonal cumulation of origin’ on changes in the transaction cost structure of a selected Slovenian firm operating within the household-appliance sector in one of the Western Balkan Countries. Based on eligibility of local subsidiary for using origin of goods in its import/export transactions the cost calculations were made for its products and then three different business scenarios were developed for showing the effects of the mechanism on transaction cost changes of a firm. The paper concludes that, at the conceptual level, the mechanism of diagonal cumulation oforigin may serve as an effective institutional cross-border trade-promoting tool

Keywords

• International business
• Institutional incentive mechanism
• Diagonal cumulation of origin
• European Union
• Transaction costs
• Western Balkan Countries