| Image credits: "Harley Davidson" by Cristian Janke

As U.S. President-Elect Trump praised "tariffs" as the most beautiful word across the Atlantic, the European Court of Justice (ECJ) delivered a landmark ruling on November 21, 2024. The ECJ dismissed an appeal, affirming the General Court of the European Union’s earlier decision that relocating production from the U.S. to Thailand, primarily to evade EU retaliatory tariffs on U.S.-origin goods, could not be deemed "economically justified." Consequently, this action violated the EU’s "anti-circumvention" rules.

THE DISPUTE'S BACKGROUND:

1. Introduction of Tariffs (June 2018):

The United States imposed additional customs duties of 25% on steel and 10% on aluminum imports from the European Union to encourage domestic production. In retaliation, the European Commission enacted Regulation 2018/886, applying additional tariffs on specific U.S. goods, including large motorcycles.

2. Impact on Harley-Davidson:

Harley-Davidson, a U.S. motorcycle manufacturer, became aware of the new tariffs through the regulation's publication in the EU’s Official Journal. On June 25, 2018, the company informed its shareholders via a Form 8-K Current Report that EU tariffs on its motorcycles had increased from 6% to 31%, raising costs by approximately USD 2,200 per motorcycle. To mitigate this impact, Harley-Davidson announced plans to shift production for the EU market from the U.S. to international facilities, expecting the transition to take 9 to 18 months.

3. Production Shift to Thailand:

Following the announcement, Harley-Davidson selected its Thailand factory to produce motorcycles for the EU market. To confirm the origin status of these motorcycles, Harley-Davidson and its logistics partner, Neovia Logistics Services International, submitted applications to Belgian customs authorities for Binding Origin Information (BOI) decisions.

4. Initial BOI Decisions (January–June 2019):

Belgian customs issued two BOI decisions certifying that the motorcycles produced in Thailand originated there. Three additional BOI applications were later processed similarly. These decisions were reported to the Commission in August 2019.

5. Commission’s Objections (October 2020–March 2021):

The Commission raised concerns that the shift in production aimed to circumvent EU trade measures, suggesting non-compliance with Article 33 of Delegated Regulation 2015/2446. After consulting Member States, the Commission formally decided on March 31, 2021, to request the revocation of the BOI decisions.

6. Revocation of BOI Decisions (April 2021):

Following the Commission’s directive, Belgian authorities informed Harley-Davidson’s logistics partner of the revocation of the BOI decisions, deeming the motorcycles’ origin incompatible with EU customs rules.

7. Action Before the General Court and the Judgment Under Appeal

Harley-Davidson Europe and Neovia Logistics Services International brought an action before the General Court seeking, among other remedies, the annulment of the Commission’s contested decision.

8. The judgment of the General Court of the European Union

The judgment of the General Court of the European Union of 1 March 2023, Harley-Davidson Europe and Neovia Logistics Services International v Commission (T-324/21, EU:T:2023:101), dismissed their action for the annulment of Commission Implementing Decision (EU) 2021/563 of 31 March 2021 on the validity of certain decisions relating to binding origin information (OJ 2021 L 119, p. 117; ‘the decision at issue’), addressed to the Kingdom of Belgium.

9. Appeal to the European Court of Justice

The appellants filed the appeal requesting that the Court of Justice:

• Set aside the General Court’s judgment.

• Annul the contested decision.

• Order the Commission to bear the costs incurred by the appellants in the proceedings before both the General Court and the Court of Justice.

The Commission requested that the Court:

• Dismiss the appeal.

• Order the appellants to bear the costs.

10. Judgment of the Court (Fourth Chamber) of 21 November 2024

KEY POINTS 

Ruling Overview:

• The European Court of Justice (ECJ) dismissed an appeal, upholding the General Court’s decision on anti-circumvention rules.

• The court ruled that relocating production from the US to Thailand primarily to avoid EU retaliatory tariffs on US-origin goods is not "economically justified."

• This violates the EU's anti-circumvention rules and impacts the determination of non-preferential customs origin.

Core Issue:

• The case focused on whether goods relocated to Thailand from the US were "economically justified" or primarily aimed at avoiding EU tariffs on US-origin products.

• The ECJ determined that the "principal or dominant purpose" of the relocation was to avoid tariffs.

Impact of Ruling on Origin Determination:

• Normal origin rules are disapplied when relocation is found unjustified.

• The origin is instead determined by the country supplying the major portion of materials used in production (residual rule).

Avoidance of Tariffs as a Primary Purpose:

• Avoiding commercial policy measures, like tariffs, need not be the sole reason for relocation to be non-compliant.

• If the dominant purpose, based on objective evidence, is tariff avoidance, the operation fails the "economically justified" test.

Implications for Businesses:

• Relocations with mixed commercial justifications but a dominant purpose of tariff avoidance could still be deemed non-compliant.

• Non-preferential origin determinations will revert to material/component origin if operations fail the test.

Potential Future Impact Under a Trump Presidency:

• New US tariffs under President-elect Trump’s administration could prompt retaliatory EU tariffs (up to 50%) on US products.

• Businesses may face stricter scrutiny over supply chain adjustments and attempts to relocate production.

SOURCE/RECOMMENDED READ: 

• EUR-Lex - 62023CJ0297 - EN - EUR-Lex