Insights from the Harley-Davidson case on tariffs, relocations, and trade compliance for customs professionals.
As we face the possibility of more tariffs on our trade with the U.S., the recent ruling in the case involving Harley-Davidson Europe Ltd and Neovia Logistics Services International NV becomes even more significant. Companies are investigating how to avoid additional tariffs, and this case, which took place during the Trump administration, offers valuable lessons for customs professionals navigating the complex landscape of regulations, appeals, and compliance procedures.
The case involved an appeal that ultimately failed, with the court ruling that none of Harley-Davidson's arguments were upheld. As a result, the company was required to pay the costs incurred by the European Commission. While the case revolves around specific legal issues, it provides broader insights that can benefit anyone working in customs and international trade compliance.
Top Tip: Explore the case further with our Explainer: Grasp the background, assess the three appeal arguments, and review the Court's decisions.
Here are our top lessons for Customs Professionals:
1. Intention Matters
One of the central issues in the case was Harley-Davidson's interpretation of Article 33. They argued that the regulation should apply a factual test, determining the origin of products based on where the most value was added. Instead, the court applied a subjective test, focusing on the intention behind a business relocation.
Lesson for Customs Professionals: Customs professionals must be vigilant about how trade regulations are interpreted and applied. As the case shows, intention matters just as much as legal facts. When planning, it is essential to ask: "What do I want to achieve, and what is my primary purpose?" This must align with the legal requirements of customs regulations.
2. Dominant Purpose Matters
Harley-Davidson argued that relocating operations, should not automatically be presumed to be economically unjustified. However, the court ruled that if the dominant purpose of the relocation is to avoid EU commercial policy measures, then it constitutes circumvention, even if there are secondary business objectives. As a result, products from Thailand would fail the "economically justified" test.
Lesson for Customs Professionals: Customs professionals should understand the significance of the "dominant purpose" behind business decisions that affect customs. If a decision is made primarily to avoid commercial policy measures, it may be scrutinised as circumvention, even if other commercial reasons exist. It's crucial to assess and document the genuine purposes behind business operations to avoid legal disputes.
3. BTIs Do Not Always Provide Legal Certainty
Harley-Davidson argued that the Commission's decision to revoke their Binding Origin Information (BOI) disrupted their legitimate expectations, as they had relied on the BOI in making business decisions. They also pointed out the lack of clarity in the legal act used by the Commission and the unreasonable delay in making the decision.
Lesson for Customs Professionals: Businesses rely on legal certainty and consistent application of rules, especially when they have obtained Binding Origin Information or similar clarifications. Customs professionals must ensure that legal rulings are obtained only when there is no reason for them to be challenged or revoked later. Additional verification processes may need to be put in place.
4. The Burden of Proof: Know What Evidence Is Needed
The court ruled that once it is established that a business relocation's main goal is to avoid commercial policies, the burden of proof falls on the business to demonstrate that there are other legitimate purposes behind the relocation.
Lesson for Customs Professionals: When engaging in activities that could be scrutinised under commercial policy measures, businesses must ensure they have sufficient evidence to demonstrate the legitimacy of their decisions. This includes documenting the intentions and commercial reasons behind relocations or business strategies that may be seen as circumventing trade measures.
5. Complying with Commercial Policy Measures: The Freedom to Operate
Harley-Davidson argued that the interpretation of the regulation and Article 33 infringed upon their freedom to conduct business. However, the court stated that any limitations on business freedom were a consequence of the EU's commercial policy measures, not the regulation itself.
Lesson for Customs Professionals: While businesses may feel constrained by trade measures such as tariffs or quotas, it is essential to recognise that such regulations are a part of broader commercial policies. Customs professionals should help businesses understand that compliance with these policies is necessary to avoid legal risks.
6. Timing Can Be Critical: Be Aware of Red Flags
The court noted that if a relocation coincides with the imposition of new customs duties, it may raise a presumption that the relocation was made to avoid the duties. In such cases, the burden of proof shifts to the operator to demonstrate that the relocation was for legitimate business reasons, not solely to avoid tariffs.
Lesson for Customs Professionals: Timing is a critical factor in customs compliance. When making business decisions around production, relocation, or changes in the supply chain, it is essential to consider how these actions might appear in light of recent regulatory changes. Customs professionals should be prepared to provide objective evidence to prove that business decisions are not motivated only by the intention to circumvent trade measures.
7. Clarity in Legal Interpretation
Harley-Davidson's argument focused on the concern that the court's interpretation created legal uncertainty by introducing a subjective element into what they viewed as an objective test. They argued that the regulatory framework intended to avoid subjective decision-making in customs matters.
Lesson for Customs Professionals: Legal certainty is crucial for customs compliance. The case highlights the need for clear and consistent interpretations of regulations so that businesses can navigate customs law confidently. Customs professionals should ensure they understand both the letter and the spirit of the law, as ambiguous interpretations can lead to unpredictable outcomes for businesses.
8. Right to Be Heard: Procedural Fairness in Customs Decisions
In the third ground of appeal, Harley-Davidson argued that their right to be heard was violated by the European Commission, as they were not given the opportunity to present evidence and legal arguments regarding the economic justification of their relocation. They also cited a lengthy delay (21–26 months) in the Commission’s decision-making process, which they claimed was unreasonable.
Lesson for Customs Professionals: The right to be heard is an essential part of due process in customs procedures. Economic operators must be given the opportunity to present evidence and arguments to defend their position, especially when decisions could significantly impact their operations. Customs professionals should ensure that businesses are aware of their procedural rights and that these rights are respected during any customs dispute, particularly when challenging decisions related to origin, tariffs, or business relocations.
Conclusion: Strengthening Compliance Practices
The Harley-Davidson case offers important lessons for customs professionals, emphasising the need for:
A clear understanding of the interpretation of trade regulations and their application.
Proper documentation of the intentions behind business decisions, particularly relocations or changes in supply chains.
Being proactive in collecting evidence to demonstrate legitimate business reasons for decisions that may be scrutinised.
A keen awareness of the timing of business decisions in relation to trade measures, as this can raise red flags.
A broader understanding of key terms and how they apply to actions that could circumvent trade policies.
The importance of respecting the limits of delegated authority in regulatory interpretation.
Ensuring legal certainty and clarity when applying customs regulations.
Upholding the procedural rights of businesses, including the right to be heard and the protection of legitimate expectations.
Maintaining transparency and efficiency in customs decision-making to avoid unnecessary delays and legal risks.
By incorporating these lessons into daily operations, customs professionals can better navigate the complex landscape of international trade regulations and reduce the risk of non-compliance or legal disputes.
More Information
Harley-Davidson's challenge to the EU's decision was denied. This blog comprehensively explains the arguments presented and the court's decision.
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