Impact of the Harley Davidson Origin Case on Customs Strategy

The Harley Davidson Origin case originated during the first term of Donald Trump, when his administration imposed steep tariffs on EU steel and aluminum.

The issue was whether the decision by Harley Davidson to relocate production to Thailand was “economically justified” or simply aimed at avoiding additional EU customs duties on certain US-origin products. The ECJ upheld the General Court’s finding that, based on objective evidence, the “principal or dominant purpose” of the relocation was to circumvent the EU’s commercial policy measures, specifically its retaliatory tariffs on these US-origin products. Harley Davidson motorcycles are therefore of US Origin and subject to EU additional duties.

The case underscores how trade policy shifts can prompt businesses to reconsider their production strategies to manage tariff impacts and how risky this decision can be.

The recent judgment following the Advocate General Opinion on the appeal case offers key insights for companies looking to optimise their customs strategy under uncertain trade policies.

What is the Harley-Davidson Origin Case About?

In Case T-324/21, Harley-Davidson Europe Ltd and Neovia Logistics Services International challenged the European Commission’s decision involving non-preferential origin rules, the revocation of binding origin information, and the concept of economically justified processing.

Context of the Case

In 2018, the Trump administration imposed additional tariffs on EU goods, with a 25% duty on steel and 10% on aluminum, aimed at boosting U.S. domestic production.

In response, the EU retaliated by imposing additional customs duties on certain U.S. products under Regulation 2018/886. Among the list of products were Harley-Davidson motorcycles.

Background of the case

Harley-Davidson motorcycles became subject to additional EU import duties of 25% in 2018, followed by another 25% in 2021. The total import duties for Harley Davidson motorbikes are therefore: 

• 6% for the standard import rate plus,
• 25% additional duty in June 2018 plus, 
• another 25% of additional duty in June 2021. 

A total amount of duty of 31% in June 2018 increasing to 56% from June 2021. Faced with the possibility of escalating costs, Harley-Davidson decided to shift production from the U.S. to its factory in Thailand.

They issued a ‘Form 8-K’ to the United States Securities and Exchange Commission to inform it’s shareholders of the intention to transfer production of certain motorcycles produced for the EU market, from the US to one of its international facility in order to avoid EU commercial policy measure. They later choose their factory in Thailand as the production site for some of his motorcycle for the EU market.

With a Thailand Origin instead of a US Origin (Non-Preferential), the motorcycles would not be subject to EU additional tariffs applicable to US goods.

Meanwhile, in the EU, Harley Davidson to obtain assurances regarding the determination of the country of origin of the motorcycled produced in Thailand, they applied for a Binding Origin Information (BOI) from the Belgium Customs Authority. The Belgian authorities initially agreed and issued a Binding Origin Information (BOI) in which they state that the goods are of Thailand origin.

However, following the EU Commission intervention, the BOI was revoked in 2021. The Commission position was that the production shift was primarily intended to avoid the EU tariffs.

Why did the EU Commission revoked the Binding Origin Information (BOI)?

For the EU Commission, the issue was the shift of production that had for objective the avoidance of the EU commercial policy measure. This, even if the avoidance of the commercial policy measures may not necessarily be the only purpose of the decision.

Legal Framework

The rules are in the EU Customs Code (UCC) (Reg (EU) No 952/2013)

Rules of Origin: Here, we are looking at Non-Preferential Rules of Origin. This is the type of Rules of Origin used for   trade defence mechanisms and other commercial measures (Preferential Rules of Origin are only applicable to Trade Agreements).

Article 60 of the Customs Code covers the acquisition of the non-preferential origin of goods. It provides: 

“1. Goods wholly obtained in a single country or territory shall be regarded as having their origin in that country or territory. 

2. Goods the production of which involves more than one country or territory shall be deemed to originate in the country or territory where they underwent their last, substantial, economically justified processing or working, in an undertaking equipped for that purpose, resulting in the manufacture of a new product or representing an important stage of manufacture.”

On the face of it, the motorbike produced in Thailand could fit in paragraph 2.

However, In addition to the Union Customs Code (UCC), the UCC Delegated Regulation (UCC-DA) provides rules of how the goods obtain this origin. In this Delegated Act, article 33 gives details of processing or working operations which are not economically justified.

‘Any processing or working operation carried out in another country or territory shall be deemed not to be economically justified if it is established on the basis of the available facts that the purpose of that operation was to avoid the application of the measures referred to in Article 59 of the Customs Code….” i.e the commercial measures.

The objective of article 33 UCC-DA is to stop “origin shopping” where companies use fake transformations in certain countries to benefit from 0% import duties.

There is little case law on this article so this case is a test for it’s interpretation.

What the role of the Binding Decision issued by Belgium?

Article 34(11) of the Customs Code provides: 

‘The Commission may adopt decisions requesting Member States to revoke BTI or BOI decisions, to ensure a correct and uniform tariff classification or determination of the origin of goods.’ 

This provision is designed to provide legal certainty by ensuring that there is a uniformity of decisions across the EU. The EU Commission overruled Belgium authorities and cancelled the Binding Origin Information. 

What was Harley Davidson defence?

Harley Davidson put forward six pleas in law in support of their action alleging:

1. Infringement of the obligation to state reasons and of the advisory procedure prior to the adoption of the contested decision. 
2. A manifest error of assessment 
3. Incorrect interpretation and application of Article 33 of the UCC-DA. 
4. Article 33 of the UCC-DA is invalid 
5. Breach of general principles of EU law and of the Charter of Fundamental Rights of the European Union
6. Abuse of powers by the Commission for political ends 

We’ll look at plea 3 in more details

Plea 3 Incorrect interpretation and application of Article 33 of the UCC-DA. 

The main argument is that, the avoidance must be an “single dominant purpose’ or an  “essential aim” for article 33 UCC-DA to be applicable. 

Harley Davidson referred to the decision in Brother International (C-26/88, EU:C:1989:637), in which the Court held that ‘the transfer of assembly from the country in which the parts were manufactured to another country in which use was made of existing factories did not in itself justify the presumption that the sole object of the transfer was to circumvent the applicable provisions’. 

Harley Davidson claimed that the Commission did not give them the opportunity to prove the existence of other purposes. They also question whether the Commission had considered the information they provided demonstrating that the economic justification test had been met. They claim that the decision was based on a “range of strong and genuine commercial drivers and was not an artificial decision whose essential aim was to circumvent the additional customs duties“(at 49) and the Commission should have checked that. 

To support this argument they proceeded by analogy between the concept of ‘avoidance’ for the purposes of Article 33 of the UCC-DA with the concepts of ‘avoidance’, ‘abuse’, ‘manipulation’ and ‘circumvention’ as clarified by the case-law in tax law or anti-dumping law.

They also put forward that the “economic justification” criteria is an objective test (at 51) based on the specific elements of a transaction, in this case, the “processing or working, in an undertaking equipped for that purpose, resulting in the manufacture of a new product or representing an important stage of manufacture” (Art 60.2 UCC).

They claim the Commission origin decision is based on a subjective matter based such as the motives of the producer. 

The court response

The court confirmed that “where the purpose of a particular operation was to avoid the application of the measures referred to in Article 59 of the Customs Code, the Commission and the customs authorities of the European Union must consider the condition relating to economic justification to be one that cannot be satisfied (57).

In the next paragraph (58), the tribunal takes the opportunity to clarify the statement: “the purpose of that operation was to avoid..”.  For the court, the term ‘purpose’ apply to a relocation operation that may have several objectives, However, if the avoidance objective is ‘principal’, ’dominant’ or decisive to the decision to relocate production to another country, then article 33 UCC-DA applies.

The court also clarifies (61) the notion “on the basis of the available facts” in Article 33 of the UCC-DA refers to the “facts available to the authority responsible for checking whether the purpose of a relocation operation was to avoid the application of EU measures relating to the origin of the goods.” 

The court pointed that Harley Davidson did provided an overview of the various reasons why production in Thailand was, in their view, ‘economically justified’ (65). However, Harley Davidson could not demonstrated the decision pre-dated the decision of the EU to introduce additional taxes. The court focused on the assertions made by Harley-Davidson in the Form 8-K publicly announcing the relocation operation  ‘to address the substantial cost of the tariff burden caused by the introduction of the additional customs duties long-term that Harley-Davidson implemented a plan to shift production of motorcycles for EU destinations from the U.S. to its international facilities’ 

Such proof differs from the search, after the event, for an economic justification or rationale for that relocation operation because that would render article 33 UCC-DA redundant. 

Regarding the change from an objective test to a subjective test, the tribunal also state (75) that the Commission “was justified in referring to subjective factors” in its application of article 33 DA.

The General Court decision

All pleas have been rejected. The General Court dismissed the action.

The Appeal: Advocate General Opinion

In May 2024, Advocate General Kokott’s opinion on the appeal in Case C-297/23 P proposed overturning the previous ruling and annulled the 2021 Implementing Decision that revoked Harley-Davidson’s BOI. Advocate-General (‘AG’) Kokott’s opinion challenges the General Court’s reasoning and addressed several critical aspects:

• “Purpose” Interpretation: The Advocate General emphasized that Harley-Davidson’s relocation decision could not solely be seen as an attempt to avoid tariffs. The “principal” purpose must be demonstrated to be circumvention for Article 33 to apply, and Harley-Davidson argued that they had other valid commercial reasons for moving production, such as supply chain efficiency.
• Burden of Proof: The opinions shifts the burden onto the EU Commission to prove that the dominant purpose of the production shift was to evade tariffs. This requires an analysis of all relevant facts, not just assumptions based on timing or external appearances.
• Objective vs. Subjective Test: The opinion clarified that while economic justifications should ideally be based on objective facts, subjective elements like a company’s strategic goals can inform the assessment but should not be the sole basis for denying a change in origin.

Appeal Decision

On 21 November 2024, the Court of Justice of the European Union dismissed the appeal (Case C-297/23). The decision has some important points of attention for customs management.

• Confirmation of the meaning of “the purpose of that operation was to avoid..” given by the General Court. The term “purpose being used in the singular, the Appeal Court considered that while the decision to relocate production may not have as “its sole purpose that of avoiding a commercial policy measure, that purpose must nevertheless be decisive”(49). “that provision must be interpreted as meaning that if, on the basis of the available facts, it appears that the principal or dominant purpose of a relocation was to avoid the application of EU commercial policy measures, then that relocation must be considered incapable, as a matter of principle, of being economically justified.”
• Confirmation of the “Principal or dominant“ . For the court, the term ‘purpose’ apply to a relocation operation that may have several objectives, However, if the avoidance objective is ‘principal’, ’dominant’ or decisive to the decision to relocate production to another country, then article 33 UCC-DA applies. The purpose adopted by the General Court (62) according to which the decisive test in applying Article 33 is the principal or dominant purpose of an operation is confirmed.
• Confirmation of “available facts“ and evidence. It is for the economic operator concerned to prove that the “principal or dominant purpose” of that relocation was not, at the time when the decision concerning that operation was taken, to avoid the application of such measures. The “principal or
  dominant purpose” of that operation must be assessed, at the latest, at the time when it was
  decided upon. Such proof differs from the search, after the event, for an economic justification or
  rationale for that relocation.
• Clarification of the first paragraph of Article 33 of UCC-DA “that an abusive practice can be found to exist, inter alia, if it is apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage.“(52).

The Court dismissed the appeal and order Harley-Davidson Europe Ltd and Neovia Logistics Services International NV to pay, in addition to their own costs, those incurred by the European Commission.

Why is this case important?

Because this is a major change from previous interpretations. This decision is moving away from the decision in Brother International  and remove the possibility for traders “to structure their activity in order to limit the fiscal debt” as stated in Brother.

Traders used to be able to demonstrate reasonable reasons for a relocation such as a cost reductions or change in supply chains. They must now demonstrate an objective that is “principal”, “dominant” above and over the duty reduction objective that becomes a secondary side effect. This greatly restricts the notion of economic justification.

As a result, it is for the businesses to prove that the principal or dominant purpose of a relocation operation was not, at the time when the decision concerning that operation was taken, to avoid the application of EU commercial policy measures. 

In effect, the burden of proof is now on traders.

Alegrant Practical Recommendations for Businesses

The case serves as a reminder of the importance of clarity in customs regulations and the need for a balanced approach in enforcing trade policies. Especially amid trade disputes and political tensions.

• Stress test strategic decisions for Customs impact
  Given the potential for sudden shifts in trade policy when political tensions erupts, businesses should be clear of the impact of their strategic decisions on customs obligations and duty exposure. In the EU, traders must be in a position to demonstrate that any relocation decision that will impact origin has been taken based on objectives that are not related to duty reduction. Companies should be prepared to provide comprehensive documentation such a board meeting minutes, supporting the economic justification for relocating production or adjusting their supply chains, especially if these moves are viewed as a response to trade policy measures.
• Sound Origin Determination
  To avoid costly mistakes or delays, companies should proactively seek clarity on the classification and origin determination of their products. As seen in this case, obtaining Binding Origin Information (BOI) can provide assurance, but businesses must be prepared for the possibility of such decisions being revisited and revoked if not sound. If you need to review the origin (preferential or non-preferential) of your products, get in touch, we’ll give you peace of mind with a preference analysis.
• Review and Strengthen Internal Customs Processes and Procedures
  With growing scrutiny on the economic justification for production shifts, businesses should review their compliance frameworks. This to ensure they can clearly demonstrate the legitimate determination of origin, the compliance with origin obligations and accurate record keeping. If you need to check the robustness of your internal audit trail, get in touch. We’ll review your compliance practices against the regulations and suggest improvements (if necessary) for sound compliance records.
• Evaluate Tariff and Duty Impact Regularly
  Regularly assess the financial impact of existing and potential tariffs on your products. Scenario planning tools and cost-benefit analyses can help businesses evaluate how changes in tariff rates will affect pricing, margins, and overall competitiveness. This proactive approach allows companies to make informed decisions regarding product pricing, sourcing, and production.

Understanding the implications of production relocation and origin determination is crucial to ensuring compliance with EU trade regulations. As a result of this landmark case, if the objective evidence, the “principal or dominant purpose” of the relocation is to circumvent the EU’s commercial policy measures, specifically its retaliatory tariffs, then such relocations lack economic justification. As a result, the standard rules for determining origin do not apply. Instead, the “residual rule” is used, attributing the product’s origin to the country where the majority of the material originates.

If you have any questions or uncertainties about the economic justification of relocations, the application of origin rules, or how these issues might impact your business, please don’t hesitate to contact us. Our team is here to provide expert guidance tailored to your specific needs and help you navigate these complex regulatory requirements with confidence. Reach out today to discuss your concerns—we’re here to assist.