Understanding the EUs Concept of economically justified processing operations in
Details
May 1, 2025 |
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Description
The case of Harley-Davidson Europe Ltd and Neovia Logistics Services International v European Commission (Case C-297/23 P) regards the concept of “processing or working operations which are not economically justified” and shifting production to mitigate retaliatory duties. In 2018, when the Trump I Administration applied Section 232 tariffs (25% on steel and 10% on aluminum), the EU responded with retaliatory tariffs (from 6% to 56%) on motorcycles imported from the US (Implementing Regulation (EU) 2018/886). Harley-Davidson moved production from the USA to Thailand hoping the benefit from preferential Thai origin and EU customs duties exemptions. Harley-Davidson obtained Binding Origin Information (BOI) decisions from Belgian customs authorities, confirming Thai origin for the motorcycles Harley-Davidson Europe and Neovia Logistics Services International v Commission
Commission's Decision
The European Commission challenged these BOI decisions, arguing that the relocation to Thailand was primarily intended to circumvent EU trade measures. Under Article 33 of Delegated Regulation (EU) 2015/2446, processing operations are not considered economically justified if their main purpose is to avoid the application of EU trade policy measures. Consequently, the Commission directed Belgium to revoke the BOI decisions.
Key question: What went wrong for Harley-Davidson?
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.
Harley Davidson Origin Case: Impact on Customs strategies
Legal Proceedings
Harley-Davidson and Neovia Logistics contested the Commission's decision before the General Court (Case T-324/21), which upheld the Commission's stance, concluding that the relocation lacked economic justification beyond tariff avoidance. An appeal was subsequently filed with the European Court of Justice (ECJ).
General Court’s Decision
Proportionality upheld:
• The increased tariff was considered proportionate in light of the economic value of the U.S. measures and the need for a balanced response.
ECJ Judgment
On November 21, 2024, the ECJ dismissed the appeal, affirming that Harley-Davidson failed to demonstrate that the primary purpose of relocating production to Thailand was economically justified independent of tariff considerations. The Court emphasized that the burden of proof lies with the company to show that such relocations are driven by genuine economic reasons, not merely to circumvent trade measures. As a result, the motorcycles were deemed to retain U.S. origin and remained subject to the additional EU duties.
Implications
• This ruling underscores the EU's commitment to enforcing trade measures and clarifies that companies cannot alter the origin of goods through relocations primarily aimed at avoiding tariffs. It serves as a precedent for businesses considering production shifts in response to trade policies, highlighting the necessity of substantiating economic justifications for such moves.
• This case affirms the EU’s discretion in trade retaliation and reinforces the link between WTO rules and EU trade defense instruments.
• It signals that even iconic companies like Harley-Davidson are not exempt from geopolitical consequences of trade disputes.
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