### **1. Purpose and Scope** This procedure outlines how to determine and maintain **preferential origin status** for petroleum products classified under **tariff heading 2710** that are **stored, handled, or blended** in the EU or the UK under the **EU-UK Trade and Cooperation Agreement (TCA)**.

Tariff Heading **2710** covers:

Petroleum oils and oils obtained from bituminous minerals (other than crude); preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals.

It applies to all facilities and operators engaged in: - Storage and distribution of petroleum products of EU or UK origin; - Occasional blending or addition of non-originating material (e.g. additives, stock adjustments); - Origin tracking using **accounting segregation** methods. The aim is to ensure that stored goods maintain or correctly lose their **preferential origin status** in compliance with the TCA.

### **2. Legal Framework** - **EU-UK Trade and Cooperation Agreement (TCA):** Title I, *Rules of Origin* (Part Two, Heading One, Chapter 2). - **Annex ORIG-2:** *Product-Specific Rules (PSR) for HS 2710.* - **Article ORIG.14:***Accounting segregation*. - **Article ORIG.12:***Tolerances for non-originating materials*. - **Article ORIG.7:***Insufficient working or processing operations*.

### **3. Product-Specific Rule (PSR) - HS 2710**

"Manufacture from materials of any heading, except that of the product, provided that the value of all non-originating materials used does not exceed 40% of the ex-works price of the product."

- Non-originating materials under the same heading (2710) **may not be used**. - Materials classified under other headings (e.g. 2709 crude petroleum) **may be used**, provided the value of all non-originating inputs **does not exceed 40%** of the ex-works price. - The product must undergo a **Change in Tariff Heading (CTH)** as part of the transformation.

For storage and distribution activities, this PSR is relevant primarily for verifying that **minor additions of non-originating material** do not exceed permissible thresholds and that the overall product maintains its preferential origin.

#### ### **4. Cumulation** - The EU-UK TCA allows **bilateral cumulation** only. - Materials originating in the UK are treated as originating in the EU and vice versa. - Inputs from third countries cannot be cumulated.

### **5. Key Operational Principles**

#### **5.1 Storage Does Not Alter Origin** - Merely **storing**, **transferring**, or **handling** originating goods does **not** affect their preferential origin status, provided: - The goods remain **identifiable**, and - No operations are performed that would constitute **insufficient working or processing** under Article ORIG.7. #### **5.2 Insufficient Operations** Origin is **not** maintained if operations performed are limited to: - Simple blending of oils; - Simple mixing, dilution, or packaging; - Any process that does not result in a change in tariff heading or essential character. However, for companies managing mixed stocks of **originating and non-originating petroleum products**, **accounting segregation** (Article ORIG.14) may be applied to maintain compliance without physically separating each batch.

#### 5.3 Sufficient Working or Processing

Processing that qualifies: - Refining crude petroleum (heading 2709) into petroleum products (heading 2710); - Chemical transformation changing the essential character of the product. Processing that does **not** qualify (as per Article ORIG.7): - Simple mixing of products; - Simple dilution; - Simple packaging or relabelling; - Any process that does not alter the tariff classification or essential character.

#### 5.3.1 Origin Verification Process Manufacturing

1. **Classify the product** under CN 2710. 2. **List all inputs** with tariff headings and origin status. 3. **Calculate the ex-works price** of the finished product. 4. **Determine total value of non-originating inputs**. - If ≤ 40% of ex-works price = condition satisfied. 5. **Ensure that no non-originating material of heading 2710 is used**. 6. **Confirm that the transformation changes the tariff heading** (CTH achieved). If all criteria are met, the product acquires **EU or UK originating status**.

### **6. Accounting Segregation (Article ORIG.14 TCA)** #### **6.1 Principle** Accounting segregation allows an operator to manage originating and non-originating materials or products **in a single inventory** where physical segregation is impractical. This method may be used **only if the records and control systems** ensure that: - The quantities of originating and non-originating goods are accurately accounted for; - No more originating goods are deemed to be exported than those that would result from physical segregation. #### **6.2 Implementation Steps** 1. **Approval** - Accounting segregation may be applied only if the operator has an **approved origin accounting system** validated by internal customs or compliance management. 2. **Inventory System Requirements** - The system must record: - Opening stock balance by origin category (EU, UK, non-originating); - Receipts (by origin and quantity); - Dispatches (with declared origin and supporting documentation). - The system must allow **traceability** from incoming to outgoing quantities. 3. **Calculation Basis** - The ratio of originating to non-originating goods in storage determines the share of outgoing goods that may be considered originating. - Example: - Stock: 90% originating + 10% non-originating. - A dispatch of 1,000 tonnes may be declared as **originating** up to 900 tonnes. 4. **Documentation** - Each origin batch movement must be supported by supplier declarations, statements on origin, or other valid proof. - Periodic stock reconciliation must confirm that cumulative declarations do not exceed available originating stock. 5. **Retention** - Records must be kept for a minimum of **three years** and made available upon customs request.

### **7. Incorporation of Non-Originating Material - 10% Value Tolerance**

#### **7.1 Legal Basis** Article ORIG.12 of the EU-UK TCA permits a **tolerance** of up to **10% of the ex-works price** for non-originating materials used, even where the PSR would otherwise prohibit such use. This tolerance cannot be used to exceed the maximum non-originating material limit (40%) specified in the PSR.

#### **7.2 Application to HS 2710 (Storage Context)** In storage operations where **non-originating material (e.g. additive or stabiliser)** is added to otherwise originating petroleum products: - The **value of the non-originating addition** must not exceed **10% of the ex-works price** of the final blended product. - The blended product may still be regarded as **originating**, provided: - The total non-originating material (including the addition) does not exceed **40% of the ex-works price**; and - The blending does not fall within **insufficient operations** (i.e., must have a legitimate commercial purpose and not merely be a simple mix). #### **7.3 Calculation Example** - Ex-works price of blended product: USD 1,000 per tonne - Non-originating additive: USD 80 per tonne (8%) - Total non-originating materials: 8% (<10%) = Product retains **preferential origin** under the 10% tolerance rule. If the addition exceeds 10%, or if total non-originating input surpasses 40%, the final product **loses preferential origin**.

#### 8. Operational Procedure

Step	Action	Responsible
1. Receipt of Goods	Record all incoming products by Commodity code and origin (EU, UK, or non-originating) based on supplier documentation.	Customer Services
2. Storage	Maintain stock records using accounting segregation. No co-mingling of origin categories without system control.	Warehouse / IT Systems
3. Addition of Material	If non-originating additives or materials are added, record the value and percentage relative to ex-works price. Verify that 10% tolerance is not exceeded.	Customer / Customer Services
4. Stock Management	Use accounting segregation ratios to allocate origin status to outgoing quantities.	Warehouse / IT Systems
5. Proof of Origin for Dispatches	Issue a Statement on Origin (Annex ORIG-4 wording) only for quantities qualifying as originating under segregation and tolerance limits.	Customs representative
6. Record-Keeping	Keep all supporting evidence (origin documents, blending records, valuation sheets) for 3 years minimum.	Customs Compliance
7. Audit and Verification	Perform internal checks quarterly to confirm compliance with origin and tolerance provisions.	Compliance Manager

### **9. Verification and Customs Control** - Customs authorities may verify origin claims by reviewing: - Stock and accounting segregation records; - Value calculations for non-originating additions; - Supplier origin documentation and statements; - Outgoing origin declarations. - Non-compliance may result in loss of preferential treatment and retroactive duty recovery.

#### 10. Summary Table - Storage Context (HS 2710)

Element	Requirement
Tariff Heading	2710
PSR Limit	Max 40% non-originating materials (ex-works price)
Tolerance Rule	Additional 10% of ex-works price for incidental non-originating additions
Cumulation	Bilateral (EU-UK)
Processing Restriction	No simple mixing, packaging, or dilution (Article ORIG.7)
Stock Control Method	Accounting segregation (Article ORIG.14)
Proof of Origin	Statement on Origin (Annex ORIG-4)
Retention Period	3 years minimum
Key Controls	Stock reconciliation, value calculation, segregation ratio monitoring

### ### **11. Conclusion** In storage operations under the EU-UK TCA, the preferential origin of petroleum products (heading 2710) can be maintained provided that: - Goods are handled under **accounting segregation** systems ensuring traceable origin management; - Any addition of non-originating materials does not exceed **10% of the ex-works value**, and total non-originating input remains within the **40% PSR limit**; - No operations constitute **insufficient working or processing** under Article ORIG.7. By applying these controls, operators can confidently issue **Statements on Origin** while maintaining full compliance with the TCA's preferential origin framework.