"Dodge This"
You can run, but you can't hide
Just a short one today, sorry!
Let’s imagine you’re a nice, friendly, multinational American company, just minding your own business, but you wake up one morning to find yourself caught up in the middle of a trade war.
The EU has decided to apply a mega tariff on your exports because the US President said something rude about Olaf Scholz.
What are your options?
You could do all or some of …
Go back to bed and hope it all blows over
Moan about it to the President and ask him to say sorry to Olaf
Take advantage of the fact your operations are multinational and export your stuff to the EU from a country other than the US.
Anyway, this is kind of what happened to Harley Davidson when the EU responded to Trump’s 2018 steel and aluminium tariffs by imposing a 56 percent tariff on motorcycles of US origin.
Harley Davidson responded by doing what any sensible company would, deciding to export motorcycles to the EU from Thailand instead.
Simple.
Or is it? On 21 November the Fourth Chamber of the European Court of Justice issued a ruling stating that the US-targeted tariffs should still apply to the motorcycles, even though they have been made and exported from Thailand.
Occasional MFN contributor and all-around top wonk George Riddell, has a useful write-up of the decision here.
Now, anticircumvention tariffs are not a new phenomenon. I have written previously about why I think the EU EV tariffs on China will probably proliferate to target imports of Chinese cars from other countries.
But in the past, what you would usually be looking for is evidence that the product was actually still being made in the country you want to tariff, but being re-routed via, or subject to insufficient transformation in, another country solely to dodge the tariff. For example, having imposed trade defence tariffs on Chinese bikes, you might decide to extend them to Tunisan bikes too if you determine the Chinese sellers are sending all the parts to Tunisia and then taking 5 minutes to put them together before shipping the fully constructed bike to the EU.
This new decision ups the ante quite considerably.
As per the Court of Justice decision, an anti-circumvention tariff can be applied if the EU determines that the primary purpose of relocation is to avoid an EU tariff.
Or, in other words, if the vibes are a bit off.
This means that, for example, if a Chinese OEM sets up in, say, the UK and actually makes all of the cars in the UK using regional inputs, the EU might take the view that the vibes are a bit off and apply the anti-subsidy tariff to any imports.
In the context of a new trade war with the US, this means that all of the normal mitigation measures [see above] taken by totemic American companies, which often find themselves collateral damage in trade disputes with the EU, may not work.
Game on.
Best,
Sam