Background: Tariffs as a result of Trump’s policies
In 2018, the Trump administration introduced import tariffs on steel (+25%) and aluminum (+10%). This measure, a campaign promise of the then US President, had far-reaching consequences. The European Union responded with counter-tariffs on American products such as motorcycles, jeans and bourbon. American motorcycles, including Harleys, were subject to an additional tariff of 31%, which amounted to around 2,000 US dollars per machine.
Harley’s plan: relocate production to Thailand
To avoid the high tariffs and reduce production costs at the same time, Harley-Davidson relocated part of its production to Thailand. The plant in Rayong, which was fully commissioned in 2019, was intended to produce motorcycles for the European market. Harley’s calculation: machines produced in Thailand would be considered Thai products and would not be subject to EU tariffs. At the same time, the factory was to serve the growing Asian markets.
But this strategy had consequences. In the USA, 600 jobs were lost. In Europe, however, the plan ran into legal hurdles.
Ruling of the European Court of Justice
The European Court of Justice recently ruled that Harley-Davidson’s relocation of production primarily served to circumvent EU tariffs. The company’s argument that the relocation was made for cost reasons was rejected as unconvincing.
The court found that the proximity in time between the introduction of the EU tariffs and the relocation of production was sufficient to prove the intention to circumvent the tariffs. According to EU regulation (Article 33 of Delegated Regulation 2015/2446), the measure was economically unjustified. Despite production in Thailand, the motorcycles are still considered to be US products, as Harley-Davidson is classified as an American company.
Precedent with far-reaching consequences
The ruling could be groundbreaking for similar cases and therefore sets a precedent. It sends a clear signal to companies that strategies to circumvent trade tariffs will be subject to strict scrutiny.
Impact on the motorcycle industry
The ruling comes at the worst possible time for Harley-Davidson. The company is struggling with falling sales figures, an ageing customer base and dissatisfaction among dealers. At the same time, Harley is under pressure to establish its electric models under the subsidiary brand LiveWire while trying to preserve the brand’s classic image.
Other manufacturers are also affected by the trade disputes. Harley’s competitor Indian, a Polaris Group company, has been producing models such as the Scout and the FTR in a factory in Opole, Poland, since 2020 – even those destined for the US market. It remains to be seen whether Indian will face similar legal hurdles.
Conclusion
Harley-Davidson’s attempt to circumvent EU tariffs by relocating production has failed. The ruling of the European Court of Justice shows how rigorously trade strategies that seek to exploit regulatory loopholes are scrutinized. For Harley, it remains to be seen how the company will react to these setbacks and whether it will succeed in getting the brand back on the road to success.
