Harley-Davidson committed to legal challenge despite partial trade war truce between EU, U.S.

Harley-Davidson headquarters
Harley-Davidson Inc.'s headquarters in Milwaukee.

Last updated on May 19th, 2021 at 01:02 pm

Harley-Davidson will pursue its legal challenge over increased tariffs on motorcycles sold in Europe despite a recent agreement between the United States and the European Union that would suspend a tariff hike on steel and aluminum.

The European Union increased its tariffs on 800cc and up motorcycles from 6% to 31% in 2018 in response to then President Donald Trump increasing tariffs on steel and aluminum.

The new EU tariff was set to increase from 31% to 56% in June, but now the European Commission, which oversees EU trade policy, says it will suspend the planned increase of retaliatory tariffs for up to six months.

Although the Milwaukee-based motorcycle maker called the partial truce “a step in the right direction,” Harley-Davidson said Monday that it would still defend its position and “remains committed to free and fair trade.”

“Harley-Davidson employees, dealers, stakeholders and motorcycles have no place in this trade war,” Harley chairman, president and CEO Jochen Zeitz said in a statement. “These tariffs provide other motorcycle manufacturers with an unfair competitive advantage in the E.U. European motorcycles only pay up to 2.4% to be imported into the U.S. We want free and fair trade. UNITED WE RIDE.”

Harley faced the prospect of $225 million in annual new tariffs on motorcycles it sells in Europe after the EU revoked an earlier determination allowing the company to import its motorcycles from non-U.S. facilities at a lower tariff.

After the tariffs were announced in 2018, Harley said it would move production overseas to avoid the new costs. The company said the initial increase alone would add $2,200 to the average cost of a bike in the EU and it couldn’t afford to pass the cost on to dealers or consumers.

In the second quarter of 2019, Harley received approval from EU regulators to import bikes from a newly constructed facility in Thailand. The company had originally built the plant to increase its access to Asian markets. Like other international plants, the Thailand facility received parts from Harley and performed final assembly.

However, last month, Harley received notice from regulators that the prior approval would be revoked as of April 19. The implementing decision made by the EU specifically points to Harley’s filings with the SEC noting it planned to move production overseas to avoid the tariffs.

The EU decision says the conditions to revoke the more favorable treatment of Harley’s products were met “even if the avoidance of the commercial policy measures may not necessarily be the only purpose of the shift of production.”

In announcing its guidance for the remainder of 2021, Harley said its operating margins could be cut by 2 percentage points if the tariffs cannot be mitigated. Without mitigating actions, the company anticipates it faces $135 million in costs this year and $200 million to $225 million on an annualized basis.

Europe is a significant market for Harley. As recently as 2018, the company had more than 10% market share for new registrations of 601cc and up motorcycles. In 2020, Harley’s market share was down to 7.7% with around 31,500 bikes registered.

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