Harley Davidson’s Tariff Detour

Machine Operated Script:

Annik  

Hello, everyone. Welcome to the simply trade podcast. We are back, actually, from a fun week at icpa. Oh my god. I met so many people. It was seriously the best time. Made so many new friends, connections and and, you know, so many people had great discussion points on, you know, what we can do with the podcast, what things we should talk about? Met loads of European folks. You know, I got to speak German, which is funny. And, yeah, I was, I seriously had the best weekend, and I had to recover just yesterday. And, yeah, and now we’re back with the news roundup. There’s been so much happening, you know, we there was the Canada terrorists proposed, and they were taken back again. And then there’s the EU situation. Now, 200% on alcohol the you know, that’s what he that’s what Trump proposed. So there’s lots of things going on, and that’s why we again, have a specialist on here to talk about these things. This time we’re talking getting really deep into EU US trade, because there’s a lot of things that are coming up, and there’s maybe a little bit of history to understand, to move forward and to see how this will impact the future. And yeah, so let me introduce we have Ilya COVID from Well, I would say, I don’t you travel the world like everywhere, so I’m not really sure where’s home right now. He’s in Israel. We just talked about that, but we previously, before we got on to recording, we spoke German. So he also grew up in Germany. So hi, Ilja. How are you doing today? And maybe you can, like, talk a little bit about yourself.

Ilja Kogan 

Hey, thanks for having me. Nice to meet you. Yes, I’m Ilya. I was born in Russia. I grew up in Germany. I studied in the Netherlands and Ireland, and then spent most of my career in Germany Muslim logistics companies, working on cross border topics, customs topics, and now I’m working as a consultant with a few clients, and in the years, mainly with Bonnie from Magnolia. Magnolia, yes, well, hi, yeah, working mostly with Bonnie from Magnolia.

Annik  

All right. Well, we’re so glad to have you. I mean, your background is pretty extensive. You also send some articles over that, you know, kind of go in depth with examples of what is happening, such as Harley Davidson case. So first I want to address the imposed tariffs that have been March 12, 2025, for up to 25% tariffs on steel and aluminum and products containing these materials, materials from the European Union and other trading partners. This has kind of created loads of tension between the EU and the US, especially, I have to say that the EU is going through a lot of changes. You know, I actually, yesterday, I just heard about the Portugals. They have re elections again too. Germany just had re elections, which was a little bit of crazy spin. And there’s just different things happening in the EU that these trade tensions is the last thing that they really need, because they’re building themselves up, and while the the US is just powering away, you know, trying to put America first, essentially, that’s, you know, the whole message behind it. You have mentioned that 2018 was kind of, you know, the start of it all, where we saw the 232, terrorists. I think that’s what they were. That’s where they were first introduced by Trump. So can you kind of talk about how that differentiates from what we see now, or if this is like the same if it’s the same thing, if EU is handling it the same way. What can you tell us for that?

Ilja Kogan 

Yes, thanks. I think we should preface by the fact that we are talking on Friday and airing on Monday. So everything might have changed by now completely, because we’re in a very dynamic environment currently. So yes, basically the European Union. The European Commission had introduced counter tariffs in 2018 and 2020 on typical American products, be it bikes, now bourbon, which everybody talks about and then has during the it was introduced during the Trump administration, then at the beginning of the Biden administration, in June 2021 those tariffs were frozen. So there were the US has taken back their tariffs, and the EU has taken back those tariffs. However, they have no. Not, not abolish the vehicle. They were just frozen, and they’re unfreezing them. So they’re those are literally the same tariffs which were introduced in 2018 and 2020 and they just saying, okay, there we we were all the time freezing them and saying they’re not in, they’re not there, they’re not there. But they had the vehicle. They had the law for this. And now they announced to unfreeze them by the end of the month. So they just they would have to prolong the freeze. And they said, We’re not going to meaning that the same tariffs which were introduced counter terrorists, which were introduced in 2018 and 2020 on the same products will apply. I think they are increasing them from 10. They’re increasing them. The amount is higher. And they also proposed a very long list of tariff codes, HS codes, HDS codes, I think they’re called in the US, which they suggest to introduce new tariffs on. It will take a while, because in the legislation in the European Union might take a bit. So they have now asked economic actors to make suggestions. So there’s a consultation period on the list, and the list is very extensive, my guess without having been in the room. But based on the on the list, it looks like it basically is everything where European Union imports from the US. They put it on the list, and now they will just discuss and see my understanding is they will do trade offs between hitting a target number because they want to the terrorists to be similar to the to the terrorists, which was introduced by the US towards the European Union, and also they don’t want to harm the European Union and also be strategic about which industry sectors in the US they address, and also maybe which what geographically they address. So yes, there is right now the consultation period, if your listeners are affected enough, it makes sense to submit a consultation, either directly or via some industry association, via the trade commerce Association, so it is possible now to influence the tariffs which are going to come.

Annik  

It says that the US tariffs will affect approximately 26 billion of EU exports, equating to around 5% of total EU goods exports to the US. So that’s a significant number. It’s funny, because we think that it’s only the country that that is affected will lose money, but it’s also the US. I mean, if we look at it that way. But do you think the European Union is suffering right now? There

Ilja Kogan 

will be several batches. The first batch will go live end of March, so in two weeks, and then the new bid afterwards. Also, like the EU is a big, big entity with several countries, things take a while, and the month in EU times is nothing. Also, if you see, I think it’s important to understand that there are only three countries who are major exporters in the EU, Germany, France and Italy. All the others are way smaller. For example, this week, a few days ago, the Irish Prime Minister was in the US, and the discussions were much easier, because Ireland has much less to to lose in terms of trade volume from tariffs than does Germany, France and Italy. So that’s why maybe they’re losing maybe not. Also two weeks by now, most of the goods are already on the ship. So I don’t think that within two, three weeks, something will be some orders will be canceled. Maybe also it’s about announcing is already the counter action where it’s in in the White House. So I would say that, you know, a month in EU time is nothing, and they have announced already something so much probably they are, in their eyes, they’re already acting

Annik  

in terms of, we’re going to get into the case now, in terms of businesses. So can you go into the Harley Davidson case? Because I think that is really interesting to see and kind of to share with businesses. Look, you have to be careful on what you’re what you’re doing, and how you’re handling the situation, because ultimately it can come back to you at the end, or, you know, the government will know, especially with such a big company as Harley Davidson, is, can you kind of explain what happened with Harley Davidson and what they tried to do to get out? Of these tariffs.

Ilja Kogan 

I think Harley Davidson case should be one which folks should have in their minds right now when reacting to the tariffs. So after the 2018 tariffs which are going to be restated now, Harley Davidson has decided to move a factory away from the US to Thailand. And they did filing to the SEC saying, We, in order to address the increased duties by the European Union, we decide to move the factory to Thailand. And okay, so basically, they did it, my guess, having worked for a long time in corporate environments, I’m sure that the tariffs were not the only reason. And you know, talents cheaper place to produce, however, going out to your American workers and saying, you know, we’re closing this part of the factory and might be firing you because of the tariffs, it’s a much nicer explanation than it’s because of, we want to optimize cost. So this would be, haven’t not been there in the room for the discussion? I’m sure it’s just a nice explanation. Now, the European Commission so and then, okay, so Harley Davidson does it. They move the factory to Thailand. They go to Belgium, where they’re going to import and get a binding origin advice, meaning that they go to explain the factory. They explain everything, and Belgium gives them a ruling, saying, okay, that those goods have non preferential origin of Thailand. They don’t fall under a free trade agreement, but they would not be subject to the US counter duties. And then the European Commission asks the Belgian government to cancel this ruling and say, No, we think although those goods were assembled in Thailand, the move was not economically. The motivation for the move was not economic, but was just pure to avoid the duties. So they just wanted to change the country of origin. How do we know it? They put it in the press release. So they put it in the press release, and they have submitted it into the SEC in the US. And Harley Davidson went to court and said, No, let’s explain to you there were economic reasons, like much cheaper and here and there. But the Commission said, No, we don’t think like this. It was like you told us, the main the primary reason was avoiding duties. And the customs law in the European Union gives this possibility to say that if you are not allowed to do actions where the primary motivation is tax avoidance. So you know right now, looking for my growing from my LinkedIn profile, and everybody talking about duty optimization and duty engineering like the commission doesn’t like cannot be the primary motivation. And so the Commission said, No, it’s not like this. And the Court of Justice confirmed it. So basically they say, No, it’s counterfeit. Region for those goods is the US, which means for for our listeners, as a learning if you are having right now, discussions with your managers, with your companies about moving factories into other countries to avoid tariffs, and it doesn’t need to be us, Like maybe out of China. Make sure to have a very good case. Why it’s economically feasible. I’m sure it’s I’m sure there are reasons to do it. Have a case before the duty discussion. And also make sure that your public relations departments, your legal departments, are not writing too explicitly into your public communication that the main reasons is duty. Yes, the smaller UI is a company, the less it matters. But if you’re a big company, which will be seen by the Commission, they might come and say, No, we don’t accept the new country of origin. I

Annik  

know the EU says that is because, you know their their primary reason was duties, Harley Davidson, ultimately, and that’s what they’ve made known. Do you think, though, the European Union is kind of struggling because, because they the workers clearly like they’re. Job losses. If they’re moving their company overseas, then the EU kind of suffers from it, right? Yes,

Ilja Kogan 

the holidays move from the US to Thailand. However, I’m sure there will be companies in the EU who would do it as well. At the end of the day, I think the whole SEC filing was too much into the face. So was too too public, where they say, you know, they should not have done it is, is my feeling? I don’t know. So maybe it’s good to hit a big player, and then the others will think twice. But yes, it’s very surprising. So nobody, not many people in the trade communities would have expected this outcome, because if it would have been another way around from a cheaper country to a more expensive country, people with them, maybe, but I’m sure there are economic reasons. The European Commission said, Yes, you come up now with the economic reasons, but you have no proof that you had the economic reasons before you had the duty avoidance reasons. So that’s why the learning for everybody make sure you have your economic case clearly outlined and written down and have like paper trail of this economic case.

Annik  

Don’t make a duties first. Don’t make a duties first. Yes,

Ilja Kogan 

of course, optimal duties is also a factor, but it should not be a major factor. And don’t communicate duties first publicly. I guess

Annik  

together with this, we can talk on the Protect USA act, right? First, I want you to explain a little bit on the omnibus initiative and how businesses in the EU are benefiting. I would have to say, I hope they’re benefiting from it. And then kind of talking on how the US is counteracting that, and saying, you know, protect USA act

Ilja Kogan 

commission is also elected in a different way, and they also have terms in the last term of the Commission, which we have by now. Therefore, the line commission, they had a very strong agenda, which is called the EU Green Deal, to introduce sustainability. And I guess the philosophy behind it is, we take the purchasing power which we as the European Union have and make the Europe a better world, the world a better world. So they we go out and say, we, we forbid our companies to buy from you if you’re not up to our standard and basically they go out and say, Now, from now on, everything will be sustainable and will be up to high moral standard. But then once the implementation started, a lot of companies came back and said, it’s very hard for us. There’s a lot of reporting requirements. They’re very deep requirements for checking our suppliers, deep into the very deep into the supply chain. European Union has a lot of small and medium enterprises. So let’s say your hair cutter, like you’re the neighborhood haircutter which would like to import a package from wherever your source, your color or whatever the lamps in your studio, haircutting studio from. It’s very hard for you if you have to comply with all those requirements. And basically, there was a report saying it’s a bit over bureaucratic, and as a result of it, the omnibus package was introduced saying, Okay, let’s decrease let’s keep the overall philosophy the same. However, let’s limit the scope of the companies which have to do it. Let’s limit the scope, how deep you have to go into your supply chain. Let’s also relax the administrative liability for things, whether the, for example, the employees of your supplier, could sue your company for any violations which are there. So this will be relaxed. And this is the omnibus package. Now the omnibus package has not made it yet through the European Parliament, because it’s like, highly discussed thing where a lot of people say it goes too far back. So we need, like, it’s okay to take it back, but not too much. So basically, what the message of the omnibus package is? We are not going back completely. We still want it. We still want the idea of taking European purchasing power to make the world a better world. So to say, not, not an official quote, but my summary and. However, we make it a bit easier. Now, the reaction of the trading partners has been quite quite harsh to it. Why? Because more or less the European Union is going and introducing its standards everywhere, and the European Union standards are quite high in certain regards. And one could argue whether it’s right or not, but they say, why would you introduce your standards into our country? I know that a lot of people have problems getting certain reporting data from Chinese suppliers, where the government said, Don’t give them the data, because if nobody gives the data, you cannot compare. And then we have, I think last week, the Protect USA Act was introduced, and it’s, it’s supposed to Shield companies to having to comply exactly with this legislation, which the omnibus package is right now, trying to decrease, but will be still there, especially for industry, like, I don’t know, gas industries and other very who have a big environmental footprint, so those companies would be forbidden from cooperating and providing the information related to this, To those sustainability measures.

Annik  

Like, what are the implications here? Don’t

Ilja Kogan 

know yet. I think, like, the this protect USA act is quite new. I think one or two years ago, I would have said, Come on, they will find a solution. Do you want? Like, won’t allow that trade with the US will stop correct. So, yeah, they will find a solution. They will make here compromise, their compromise. However, they have now an environment where I think everybody is a bit harsher overall, and they are playing a bit hard. So let’s see. You know all this legislation on there immediately. It will take some time, like years, for it to go, to go in place. Maybe by then, the environment will be a bit less harsh. But yes, at the end of the day, will the European Union say, if they, if your US supplier doesn’t want to provide the information there isn’t, you can’t import it, very sorry, find a different supplier or not. We don’t know what, whether it will happen in two years or not. It’s a it’s an interesting question. Most probably it will be somewhere in between.

Annik  

People do say it is already a trade war, right? But what do you think? What do you think is, is looking ahead, like, what do you see?

Ilja Kogan 

Okay, Germans, like translating German expressions to English and just using them. So I don’t think that things will be eaten as hot as they will be cooked. So I think the I think this, and I don’t know, you know, my feeling is that there will be a lot of discussions and debates right now, but eventually they will find a mutually a mutual understanding to not shut down the trade. And yes, in the short term, I can imagine, and seeing it, it’s not great having to change your duty estimation each day. And on that hand, I think a lot of trade people are complaining right now, but it’s a really cool time to be in the trade profession because you’re the cool kids on the block. Do

Annik  

you think the EU will be affected harder than the US will, or the opposite? What? What is your standpoint on that? Or can you see them hurting more than the US?

Ilja Kogan 

The EU has a lot of countries, and only individual countries will be hurt more, like Germany, France, maybe Italy, because we are talking we are talking German steel and Italian steel. We are talking French wines. I don’t think that. I don’t know we’re talking much less about other countries. I would be surprised if a year from now, we are still like this really dynamic environment, so I think at the end of the day, they’re now trying to get negotiations done. So hopefully it will be the negotiation will stop soon. Now, what an interesting other thought is that US is kind of engaging with most of its trade partner, and the EU is right now having this trade war only with one trade partner. So from this perspective, I think it might be more hurtful to the US consumers and US companies then it will be to be. German ones, because, like all the European ones, because Europeans will have more trade partners with whom they’re not engaged in a trade for. Yeah,

Annik  

I can see that. And And lastly, I want to ask you, what are some of the things you advise right now to businesses?

Ilja Kogan 

So basically, I have to luxury to be more in the E commerce space, where the margins are so high that you just don’t don’t matter as much the more problem is uncertainty of process, that you cannot move goods. And at the end of the day, I think what my experience has been is that you need very resilient processes which could react to those things. Either you need to know which items you have from where to where. What I don’t know about, because I’m not deep enough, is, you know, if people have really low margins, and the duties will cut so much in the margins that they cannot produce anymore. I’m not a pricing expert. I’m not a finance expert. What they would do there, but at the end of the day, yes, have data in place and have a backup process. It’s like the high level for me. However, I can imagine that everybody has their own situation and also their own degree of automation they can go back to,

Annik  

yeah, all right. Well, I want to thank you so much Aliyah for coming on. I also want to note that today is San Patrick’s Day, so I hope you’re lucky today, everyone. I hope we’re all lucky. We’ll see, maybe we’ll be lucky with the trade soon. And yeah, so thank you so much for listening, everyone, and thank you Ilya for coming on, and we’ll have to monitor what will happen. And I hope you enjoyed this episode, and we will be back next Monday, so we’ll see you. Then, thank you guys for coming up to us at icpa. And if you have any questions and anything moving forward, please reach out to us LinkedIn or anywhere. And again, you can listen on all platforms where you get your podcasts. So see you. Then you