Implications of the recent Harley-Davidson ECJ case

26/11/24

The European Court of Justice (ECJ) concluded that Harley-Davidson’s relocation of production from the US to Thailand was primarily intended to circumvent EU trade measures, thus considering the processing in Thailand as ‘non-economic’ under article 33 of the Delegated Act to the UCC, and upheld the European Commission's decision to invalidate the Binding Origin Information (BOI) decisions granted by Belgian Customs.

What does this mean for your business

With recent and current developments in relation to the trade landscape, where countries protect their internal markets through increasing the amount of policy measures (such as additional duties upon importation) this is a very relevant case to consider. Especially when considering re-location of production activities.

Examples of this are the dispute on electrical vehicles from China, expected additional duties following the US elections as well as the dispute that inspired the relocation of Harley-Davidson’s production to Thailand in the first place.

Since these duties are commonly substantial (often higher than ‘regular’ duty rate), it is a natural reaction for companies to consider mitigation options. However, what this new ruling has - once again - made very clear is that careful consideration is to be given and proper analysis is to be performed in respect of all potentially relevant legislation before decisions are made.

If relocation of production activities is considered, it should be driven by genuine economic reasons beyond merely avoiding trade measures. For businesses, this means a heightened need for transparency and robust documentation to justify the economic viability of their production strategies. The ruling also serves as a cautionary tale, indicating that regulatory bodies will closely scrutinize relocations that coincide with the imposition of trade measures.

Background

The case at hand involves the re-location of Harley-Davidson’s production activities from the US to Thailand – following the implementation of EU retaliation measures against the US (in response to U.S. tariffs on European steel and aluminum). Products originating from the US would be subject to additional duties, where products originating from Thailand would not be. Therefore, the dispute centers around the non-preferential origin determination of certain motorcycles and the application of relevant customs legislation in the context of the trade policy measures.

Harley-Davidson sought to mitigate the additional duties by relocating part of its production from the US to Thailand, and subsequently obtained Binding Origin Information’s (BOI) from Belgian customs authorities to confirm Thailand as the country of origin for these motorcycles.

Article 33 of Delegated Act to the UCC plays a pivotal role in this case. This article addresses the concept of ‘non-economic processing or working’ and stipulates that a processing or working operation in another country is considered non-economic if it is established that the primary purpose of such an operation was to avoid the application of trade measures.

In this case, the European Commission argued that Harley-Davidson's relocation of production to Thailand was primarily intended to circumvent the additional EU tariffs on U.S.-origin motorcycles. The ECJ upheld this interpretation, emphasizing that the primary or predominant purpose of the relocation was to avoid the trade measures, thus rendering the processing in Thailand non-economic under article 33.

How can PwC help

PwC can assist companies in how to navigate this new trade landscape and analyze the consequences of any whished for changes to the supply chain.

We can also be your sparring partner in discussions on what the consequences can be of the changing trade landscape as well as assist in determining the potential/best next step to be taken.