From Selling to Producing: How Rules of Origin Can Reshape Economic Relations Between Italy and Africa

Economic relations between Italy and Africa are entering a phase in which trade policy, industrial strategies and economic diplomacy are becoming increasingly intertwined. Against this backdrop, the growth of African markets and the progressive development of their productive capacities may create opportunities for integration into broader value networks, in which Italy, Europe, the Mediterranean and Africa can play complementary roles. Many African economies are now among the fastest-growing in the world, generating growing demand precisely in sectors where Italian companies have well-established expertise: industrial machinery and equipment, agricultural technologies, food-processing plants and equipment, construction equipment, energy systems, water-resource management technologies, pharmaceutical products.

According to the African Development Bank, 12 of the 20 fastest-growing economies in the world in 2025 were African. The outlook for 2026 remains equally significant: the continent's economy is expected to grow by 4.2%, while East Africa is projected to remain the fastest-growing regional economy, with an expected growth rate of 5.9%.

For Italian companies, the main opportunities lie in moving from a logic of pure commercial exchange towards one of productive integration. The real challenge is to build value networks capable of connecting Italy, Europe, the Mediterranean and the African continent.

It is precisely in this context that the Pan-Euro-Mediterranean Convention (PEM), which entered into force in its revised version on 1 January 2025, holds significant strategic potential. Its rules can influence how Italian companies organise production and distribute different stages of the production cycle across multiple countries. The PEM framework can become a lever for fostering a more integrated Euro-Mediterranean economic space and, indirectly, strengthening productive connections with African economies.

In particular, Pan-Euro-Mediterranean rules of origin—and the cumulation mechanism in particular—can facilitate the organisation of production on a transregional scale. Cumulation rules allow companies operating within the Euro-Mediterranean area to combine inputs and production processes located in different countries. Under certain conditions, this allows the final product to retain its entitlement to preferential tariff treatment when it enters the European Union market.

How the PEM Convention works

This perspective is particularly relevant for Italy, whose production system is deeply integrated into international supply chains and is characterised by its ability to transform and add value to materials, intermediate goods and components sourced from different markets. A significant part of its competitive advantage lies precisely in higher-value-added stages of production and in the ability to combine material inputs, knowledge, skills and technologies originating from internationally distributed production and supply networks.

It is precisely this characteristic that makes PEM rules of origin a strategic element. If Italian competitiveness depends on the ability to combine, transform and integrate factors of production originating in different locations, then the possibility of distributing different stages of the production cycle across multiple countries becomes a strategic advantage—provided that the final product can continue to benefit from the preferential tariff treatment provided for under the relevant agreement when it is released for free circulation in the European market.

What is the diagonnal cumulation under the PEM Convention?

In this context, diagonal cumulation is one of the most important mechanisms within the PEM system.

It allows materials and processing originating in different partner countries to be taken into account when determining the preferential origin of the final product. Cumulation is described as "diagonal" because it extends the recognition of originating materials and processing beyond a bilateral relationship between two countries, involving multiple countries connected through a network of preferential agreements.

In practical terms, this means that a company can distribute different stages of the production process across several partner countries, allowing certain originating materials and processing operations carried out in those countries to be taken into account when determining the preferential origin of the final product.

Diagonal cumulation can therefore make it possible to organise a production process across multiple countries without the geographical fragmentation of production, in itself, necessarily resulting in the loss of preferential origin for the final product.

PEM Rules of Origin

To determine whether diagonal cumulation can be applied in practice, the first step is to consult the updated PEM matrix, which indicates between which countries the conditions for applying this form of cumulation exist.

The analysis must then proceed to the specific product. This requires identifying its tariff classification and consulting the corresponding product-specific rule of origin, contained in the so-called "list rules".

These rules, set out in Annex II to Appendix I of the PEM Convention, establish which processing or transformation operations must be carried out on non-originating materials incorporated into a particular final product for that product to qualify as originating.

Depending on the type of product, the applicable rule may require, for example, a change in tariff classification, compliance with a maximum limit on the use of non-originating materials in the finished product, or the completion of a specific processing or transformation operation.

Italy, Morocco and Tunisia: an example of diagonal cumulation

An example can help clarify the mechanism. Imagine an Italian company producing fabrics and exporting them to Tunisia, where they are used to manufacture a garment. Some of the other materials used in producing the garment are sourced from Morocco. If the conditions required under the PEM system for diagonal cumulation between the European Union, Morocco and Tunisia are met, originating materials from the European Union and Morocco may, under the applicable rules, be taken into account when determining the preferential origin of the finished product manufactured in Tunisia.

In this case, the production process spans three countries: Italy supplies the fabric, Morocco supplies other originating materials, and Tunisia carries out the subsequent processing and garment-making operations.

To determine whether the finished product can benefit from preferential treatment when released for free circulation in the European Union, it is first necessary to establish, using the applicable PEM matrix, that the conditions for diagonal cumulation between the countries concerned (the EU, Tunisia and Morocco) are satisfied.

The tariff classification of the finished product must then be identified, and the relevant product-specific rule of origin under Annex II to Appendix I of the PEM Convention must be examined, ensuring that the processing carried out in Tunisia fulfils the requirements established by that rule.

If all applicable conditions are met, originating materials from the European Union and Morocco may be treated, for preferential-origin purposes, in accordance with the cumulation rules applicable to the commercial relationship concerned. The finished product manufactured in Tunisia may therefore acquire the preferential origin provided for under the relevant agreement—provided that all applicable rules of origin are satisfied—and benefit, upon importation into the European Union, from the preferential tariff treatment provided for under the applicable agreement.

This example illustrates the logic of diagonal cumulation: a company can distribute different stages of the production process across several countries linked through a network of preferential agreements, using originating materials from different partners without such geographical fragmentation necessarily resulting in the loss of preferential origin for the final product.

It is precisely this possibility that makes diagonal cumulation potentially relevant to the organisation of value chains across the Pan-Euro-Mediterranean area.

The PEM Convention and the AfCFTA

A clarification is necessary. The application of the rules of origin under the revised PEM Convention depends on the applicable preferential agreement and, in particular, on whether that agreement contains a reference to the Convention allowing the revised rules of origin to be applied.

Although the revised Convention entered into force on 1 January 2025, the application of the new rules is not necessarily uniform across all agreements and commercial relationships. In any specific case, it is therefore necessary to verify which version of the rules of origin applies to the particular commercial relationship and product concerned.

The cumulation mechanism can therefore influence companies' decisions on where to locate different stages of production and, consequently, contribute to reshaping the geography of value chains.

For Italy, this opens up a particularly interesting perspective: the Mediterranean can be viewed not merely as a destination market or transit area, but as an integrated production space in which companies located in different countries perform complementary functions within the same production process.

The PEM Convention, however, does not extend its cumulation system to sub-Saharan African economies as such.

Its potential in relation to Africa lies instead in its ability to strengthen Euro-Mediterranean productive integration and, through the commercial and economic connections linking this space with African economies, create new opportunities for African companies and products to become integrated into value chains connecting Europe, the Mediterranean and Africa.

In other words, although the PEM Convention does not constitute a direct bridge to sub-Saharan Africa, it can help build one of the regulatory and productive shores through which such a connection may develop.

A new dimension is now being added to this architecture: the establishment of the African Continental Free Trade Area (AfCFTA).

The role of the AfCFTA in the African Productive Development

The AfCFTA is progressively creating the conditions for a more integrated African market in which production, investment and distribution networks can be organised on a continental scale.

For Italian companies, this changes the logic of entering African markets. Instead of viewing each country as an isolated destination, Africa can increasingly be seen as a set of progressively interconnected markets in which productive and distribution strategies can be developed around regional hubs, economic corridors and cross-border production networks.

This is where a potential strategic interaction emerges between the Euro-Mediterranean and African trade architectures.

The PEM system can facilitate productive integration within the Euro-Mediterranean space. The AfCFTA can strengthen the movement of goods, services and investment among African countries.

The interaction between these two architectures can provide companies with a broader framework within which to organise value chains spanning the Euro-Mediterranean space and the African continent.

This is not, of course, an automatic process. But the convergence of these two regulatory frameworks can contribute to creating more favourable conditions for the emergence of a new geography of production.

Why rules of origin can be a strategic lever for companies

The PEM Convention, by itself, cannot create a Euro-African free trade area. Nor can it eliminate the practical barriers that companies face at borders, along transport corridors or within logistics systems.

Its function is more specific. It can represent one of the regulatory building blocks of a broader architecture in which European, Mediterranean and African production networks can become progressively more interconnected.

Its strategic value, therefore, does not lie in its ability to create integration between these geographical spaces on its own, but in its capacity—when regulatory and commercial conditions allow—to make the cross-border organisation of production more feasible.

For Italy, this requires a rethink of economic diplomacy in Africa. The objective should not be limited to promoting Italian exports, but should also be to position Italian companies within the productive systems that Africa is building.

This means identifying sectors in which Italian industrial and technological capabilities can complement Africa's productive potential. It means linking export promotion with investment promotion; combining trade finance with industrial partnerships; helping companies navigate rules of origin and preferential trade agreements; and, at the same time, working with African partners to improve production standards, industrial capabilities and technical skills, strengthening the conditions necessary for companies to integrate into regional and international value chains.

The most important contribution Italy may make to African economies in the future may not simply be to supply goods to African markets, but to help strengthen their productive capacity.

An Italian company that exports generates a transaction. A company that invests in local production, transfers technology and skills, and builds industrial partnerships, by contrast, helps create a productive ecosystem. It is precisely this ecosystem that can generate new transactions over time, mobilise additional investment and create the conditions for a lasting presence of Italian companies in African markets and their value chains.

The PEM Convention should therefore be viewed not simply as a technical instrument of trade policy, but as part of the regulatory infrastructure supporting economic integration. Its strategic value lies in its ability, under certain conditions, to make cross-border production more feasible.

This potential, however, can only be fully exploited if companies, policymakers and trade-support institutions begin to view rules of origin not merely as administrative requirements necessary to obtain tariff preferences, but as instruments through which value networks can be organised and optimised. This is where a paradigm shift is needed.

The future of economic relations between Italy and Africa

Italy should not view Africa merely as a bunch of markets to which it can export, nor Africa should not be regarded merely as a source of raw materials to import. The greatest opportunities lie in building an economic relationship in which Italian technology and industrial capabilities, African resources and factors of production, African regional markets and European demand become complementary components of a shared productive architecture.

The PEM Convention can help make some of these connections possible. The AfCFTA can strengthen them within Africa. But the real transformation will not be produced by trade agreements themselves. It will come only if companies on both sides of the Mediterranean are able to use these regulatory frameworks to organise production across borders.

And perhaps this is the least explored dimension of rules of origin. They do not merely determine where a product comes from. They can help determine where it makes sense to produce it, which stages of the production process should be located in each country, and how value should be distributed along a production chain. They can therefore influence not only existing trade flows, but the industrial geography that has yet to be built.

The next chapter in economic relations between Italy and Africa will not be written by asking how much Italy can sell to Africa or how much Africa can export to Italy. It will be written by asking how production can be organised so that Italy and Africa can become parts of the same productive system. From this perspective, rules of origin cease to be a technical footnote in trade agreements and become one of the invisible infrastructures through which decisions are made about where to produce, and where to create value.

(Read the original article in Italian)