Court of Justice of the EU : stricter enforcement on circumventing customs duties
The run-up to the dispute started in the summer of 2018, when the USA introduced additional customs duties of 25% and 10% on imports of European made steel and aluminum. The EU responded by applying additional customs duties on various products made in the USA. Among these products, were the Harley Davidson motorcycles, which beside the standard import rate of 6%, got an additional import duty of 25% with plans for an additional customs duty of 25%.
In reaction to this news Harley Davidson decided to shift part of the production of their motorcycles for the European market from the US to a plant in Thailand. Harley-Davidson requested a Binding Origin Information (“BOI”) from the Belgian customs authorities confirming the origin Thailand for the motorcycles. The Belgian authorities initially granted the BOI Thailand, however, later revoked it upon request of the European Commission.
Circumvention of customs duties?
The dispute focuses on whether Article 33 of Delegated Regulation 2015/2446 was interpreted correctly. This article states that if any processing or working operation is carried out in another country or territory, with the purpose to avoid tariffs, shall be deemed not economically justifiable and the goods will not be able to receive the Origin of the country where these workings took place.
In the context of Article 33 of the Delegated Regulation 2015/2446 the purpose to avoid refers to the principal or dominant purpose of relocation. Harley-Davidson had informed it’s stakeholders in the US that they were to relocate part of its production process overseas to avoid the tariff burden arising from the commencement of the additional customs duties. Based on this, the CJEU ruled that the principal purpose of the moving of part of the operation, was to avoid additional customs duties. Therefore, the condition of Article 33 Delegated Regulation was met and the products of Harley-Davidson will continue to have the origin USA.
Implications of a circumvention decision
The judgement of the CJEU shows a strict interpretation of Article 33 of the Delegated Regulation and should act as a warning to other companies considering relocation. Changing the Origin of your products has more rules and regulations than expected.