The Harley-Davidson Case: Explainer
Harley-Davidson's challenge to the EU's decision was denied. This blog comprehensively explains the arguments presented and the court's decision.
Background
In June 2018, the U.S. imposed additional tariffs on steel and aluminium imports from the EU, aiming to boost domestic production. In response, the EU introduced its own tariffs on certain U.S. products, including motorcycles, to retaliate. Harley-Davidson, a U.S. motorcycle manufacturer, was affected by these tariffs and announced in a report that it would shift some of its motorcycle production to Thailand to avoid the EU's higher import duties.
Harley-Davidson and its logistics partner, Neovia, applied to the Belgian customs authorities for Binding Origin Information (BOI) decisions in January 2019 to clarify the origin of these motorcycles for customs purposes. In June 2019, the Belgian authorities confirmed that the motorcycles produced in Thailand were of Thai origin.
However, the European Commission disagreed with this decision. The Commission believed that Harley-Davidson’s move to Thailand was mainly to avoid the EU tariffs, rather than a genuine business decision. As a result, in March 2021, the Commission formally requested the Belgian authorities to revoke the BOI decisions. The Belgian authorities followed this request in April 2021, revoking the decisions about the Thai-made motorcycles.
The core issue was whether the production shift to Thailand was economically justified or primarily done to avoid tariffs. The Commission argued it was a tactic to circumvent EU trade measures.
The Court Ruling is HERE
Three Grounds of Appeal
The appeal revolves around three main issues raised by the appellants:
1. Incorrect Interpretation of Article 33: The appellants argue that the General Court misunderstood the purpose of Article 33 of Delegated Regulation 2015/2446. They claim this article should focus on identifying the last significant value-added process in a product’s origin, not a subjective assessment of motives behind business decisions. The appellants argue that the General Court shifted the focus to a subjective test, making it difficult for businesses to justify relocations made for legitimate economic reasons.
2. Limits of Delegated Authority: The appellants claim that the General Court exceeded the limits of its authority, arguing that the Commission overstepped its powers in reinterpreting the origin of goods based on business decisions, such as relocations intended to avoid EU commercial measures.
3. Breach of the Right to Good Administration: The appellants also argue that their right to good administration was violated, as the General Court imposed an undue burden of proof on them to justify their business decisions. They claim that the Court wrongly concluded that the relocation was primarily aimed at circumventing EU measures without considering all the facts and evidence.
Appeal 1: Incorrect Interpretation of Article 33
The first appeal ground is how the General Court interpreted Article 33 of Delegated Regulation 2015/2446.
The appellants make three main arguments:
Incorrect interpretation of the provision: The appellants argue that the General Court needed to have understood the purpose of Article 33. They say that the regulation should define the origin of a product based on an objective, factual test (where the most value was added). However, the General Court applied a subjective test, focusing on the intention behind the relocation. The appellants believe this was a mistake, as it creates legal uncertainty and conflicts with international rules.
Wrong approach to the presumption of circumvention: The appellants claim that the General Court wrongly assumed that any business relocation linked to EU commercial policy measures (like trade restrictions) is always a violation. Instead, they argue that businesses should be allowed to relocate for legitimate, non-avoidance reasons, and that the burden of proof shouldn’t be on them to disprove a presumption of circumvention.
Burden of proof and evidence: The appellants argue that the General Court erred in requiring them to prove that their business relocation was economically justified. They claim that the timing of the relocation alone (coinciding with new trade measures) should not automatically be seen as evidence of circumvention. They also argue that the Court relied on incomplete or selective evidence and didn’t properly consider all facts available.
In summary, the appellants claim the General Court misinterpreted the law, wrongly assumed relocation was always to avoid trade measures, and misused evidence.
Summary of Court's Findings
Appeal 1: Interpretation of Article 33 of Delegated Regulation 2015/2446
The General Court correctly interpreted Article 33, which states that operations in other countries are considered economically unjustified if their primary purpose is to avoid EU commercial policy measures.
1. Interpretation of Article 33 of Delegated Regulation 2015/2446
The term "purpose" refers to the dominant reason for relocating production, and it doesn’t require that avoiding commercial policy measures be the only reason, just the principal one.
The appellant's argument that the regulation should only apply to relocations with no valid commercial reasons was rejected. The Court explained that even if secondary purposes exist, the dominant one should be preventing the application of EU commercial policy measures.
2. Burden of Proof:
Once it is shown that the main goal of a relocation is to avoid EU commercial policies, it is up to the economic operator to prove otherwise, i.e., that the relocation had other primary purposes. The Court emphasised that operators should provide evidence about their intentions at the time of the relocation based on objective facts available at that time.
3. Freedom to Conduct Business:
The appellants argued that the interpretation infringed their business freedom, but the Court held that any such limitation resulted from the commercial policy measures themselves, not the regulation.
4. Interpretation of "Manipulation":
The term "manipulation" in the regulation’s recital 21 was clarified to cover any actions that lead to changing the origin of goods to avoid commercial measures, not just those with the sole aim of circumventing them. This wider interpretation was supported to maintain the regulation’s effectiveness.
5. Coincidence of Timing:
The General Court noted that when a relocation coincides with the imposition of new customs duties, this may raise a presumption that the relocation's purpose is to avoid the duties. The Court ruled that such a presumption requires the operator to prove legitimate reasons for the relocation besides avoiding the duties.
In conclusion, the Court rejected the appellants' claims and upheld the interpretation of the regulation that focuses on the dominant purpose of relocation operations, ensuring it aligns with the prevention of circumvention of EU commercial policy measures.
Appeal 2 Limits of Delegated Authority
In the second ground of appeal, Harley Davidson argues that the General Court made an error in law by interpreting Article 33 of Delegated Regulation 2015/2446 in a way that goes beyond the delegation allowed by Article 62 of the Union Customs Code.
1. Subjective vs Objective Test: Harley Davidson claims that the General Court’s interpretation changes the law by replacing the objective test (based on economic justification) with a subjective test (based on the intention of the economic operator). This, they argue, undermines the original legislative intent, which removed the subjective test from the old Community Customs Code.
2. Legal Certainty: They argue that this interpretation creates confusion and inconsistency between the legislative and delegated acts.
However, the Court rejected this argument, stating that the General Court did not interpret Article 33 in a way that introduced a subjective test. Therefore, the second ground of appeal was dismissed.
Appeal 3 Breach of the Right to Good Administration
In the third ground of appeal, Harley Davidson argues that the General Court made two key mistakes regarding their right to good administration:
1. Right to Be Heard: Harley Davidson claims the Commission violated their right to be heard. They argue that they should have been allowed to present evidence and legal arguments, particularly about the economic justification for their relocation. They believe this failure to properly listen to them should lead to the annulment of the decision. The General Court agreed that the Commission did not listen to the appellants before making its decision. However, it decided that this mistake didn’t affect the outcome enough to cancel the decision. The Court said that to cancel the decision, the appellants needed to show that the outcome might have been different if they had been heard, but they didn’t provide enough proof. So, the first part of their appeal was rejected.
2. Legitimate Expectations, Lenth of the Procedure and Legal Certainty: The appellants argue that the Commission's decision to revoke the Binding Origin Information (BOI) was unfair, disrupting their legitimate expectations based on the BOI decisions. They claim that the legal act used by the Commission needed to be clarified and that the delay in making the decision (21-26 months) was unreasonable. The appellants argued that the long process violated their rights and expectations. The General Court explained that a Binding Origin Information (BOI) decision doesn’t guarantee that the decision will never change, so their expectations were not violated. The Court also said the process length was reasonable, given the circumstances, and the appellants didn’t prove the facts were distorted. So, the second part of the appeal was also rejected.
Conclusion
In conclusion, Harley Davidson's appeal is focused on challenging the General Court's interpretation of the regulation. The Court has effectively held that if the dominant purpose of a business decision (like relocating production) is to avoid the application of EU commercial policy measures, such an operation cannot be considered economically justified. As a result, the court has dismissed the appeal, as none of the arguments put forward by the appellants were upheld.
Regarding costs, since the appeal was unsuccessful, the appellants, Harley-Davidson Europe Ltd and Neovia Logistics Services International NV, are ordered to pay both their own costs and the costs incurred by the European Commission, as requested by the Commission.
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