Saturday, July 7, 2018

The Strange Case of Ford’s Attempt to Avoid the ‘Chicken Tax’

File under: Government created distortions

By Todd C. Frankel

Brand-new Ford Transit Connect vans, made in Spain, are dropped off at U.S. ports several times a month. First, they pass through customs — and then workers hired by the automaker start to rip the vehicles apart. The rear seats are plucked out. The seat belts in back go, too. Sometimes, the rear side windows are covered with painted plates. Any holes left in the floor are patched over.

This is how Ford Motor Co. tries to get around the half-century-old “chicken tax.” It’s also a lesson in the long legacy of tariffs — and the unexpected ways that companies do everything possible to get around them. These creative workarounds are likely to become more common after the United States on Friday hit $34 billion in Chinese goods with tariffs, inviting retaliation by China on American goods — all part of an escalating global trade spat.

The chicken tax is a 25 percent U.S. duty slapped on pickup trucks and work vans produced outside North America — 10 times the 2.5 percent duty on imported passenger vans. The tax is a relic of a mostly forgotten trade war from the early 1960s, when Europe tried to stop a flood of imported U.S. chicken and, in retaliation, President Lyndon B. Johnson imposed the big tariff aimed at European automakers such as Volkswagen.

That’s what makes the rear seats so important.

By removing the rear seats and converting passenger vans into cargo vans immediately after they officially enter the country, Ford has avoided an estimated $250 million in U.S. tariffs over the years. Customs officials have cried foul. The automaker says it’s just following the colorful practice of what trade lawyers call “tariff engineering.” Now, the two sides are locked in a federal court battle that American importers are closely watching.

Read the rest here.

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