Chicken Tax Controversy – Has Its Time Come?
Tim Esterdahl | Dec 23, 2013 | Comments 13
There has been quite a lot of conversation lately in automotive circles about the chicken tax possibly ending and what the future of trucks would look like if it did. If you aren’t aware of the controversy, here is what is going on and possible implications.
Ford has circumvented the Chicken Tax tariff by importing the Transit Connect van and then modifying it. This practice could come to an end.
The so-called chicken tax has been around for decades and deals with the importation of light-duty trucks into the U.S. Here is a good explanation from Wikipedia:
The chicken tax is a 25% tariff on potato starch, dextrin, brandy, and light trucks imposed in 1963 by the United States under President Lyndon B. Johnson in response to tariffs placed by France and West Germany on importation of U.S. chicken. The period from 1961–1964 of tensions and negotiations surrounding the issue, which took place at the height of Cold War politics, was known as the “Chicken War”.
Eventually, the tariffs on potato starch, dextrin, and brandy were lifted, but over the next 48 years the light truck tax ossified, remaining in place to protect U.S. domestic automakers from foreign light truck production (e.g., from Japan and Thailand). Though concern remains about its repeal,a 2003 Cato Institute study called the tariff “a policy in search of a rationale.”
As an unintended consequence several importers of light trucks have circumvented the tariff via loopholes—including Ford (ostensibly a company the tax was designed to protect), which imports the Transit Connect light trucks as “passenger vehicles” to the U.S. from Turkey and immediately strips and shreds portions of their interiors in a warehouse outside Baltimore
Speaking of Ford, they got their hands slapped in January of this year for their Transit Connect plan. Ford’s plan was aimed at saving thousands of dollars in tariffs per unit. Small passenger vans, like cars, face a 2.5 percent import tariff in the U.S. compared to the 25 percent from the Chicken Tax. Ford’s importation of the Transit Connect were classified as passenger vans. It wasn’t until they were modified by the contractor in Baltimore did they become reclassified as light duty trucks. Basically, the contractor would strip out the seats and windows that would turn them into cargo vans. Ford reportedly is appealing the ruling from U.S. Customs and Border Protection.
While it is appealing that decision, Ford is lobbying Congress and U.S trade negotiators to keep the chicken tax in place, according to an Autonews.com story. Essentially, Ford is hoping to keep the Japanese automakers from bringing its models into the U.S. (Toyota Hilux anyone?).
GM and Chrysler as well would be interested in changes in the Chicken Tax. Depending on your view, GM might want it to go away, so that they could import their products into the U.S. from Thailand and consolidate U.S. production. The other view is that GM and Chrysler, like Ford, would want it to stay, so their trucks don’t face any new competition.
Before we get too far, it is worth noting that “light trucks manufactured in Mexico and Canada, such as the Ram series of trucks manufactured in Saltillo, Mexico, are not subject to the chicken tax under the North American Free Trade Agreement,” according to Wikipedia.
This is the VW Amarok that VW says it may bring into the U.S. if the Chicken Tax goes away.
While the Hilux would certainly be an interesting mid-size truck option, VW is also trying to get the tax repealed. VW has plans to grow its market share in the U.S. and it sees the truck market as a ripe place to do so with its Amarok. The Amarok has been praised highly overseas and it has VW’s TDI turbo engines. It is very likely that VW would keep the same engine if it brought it over. Also, interesting about the Amarok is that it truly is a “mid-size” in that reports have it being in-between a Hilux and an F-150. From what we understand, it is more like the T-100.
At the LA auto show, VW’s CEO Jonathan Browning said it would seriously consider bringing the truck to the U.S. if the Chicken Tax went away.
On the political front, there is a new Trans-Pacific Partnership trade agreement being debated. Part of this agreement could be the ending of the Chicken Tax which would likely open the door to all sorts of changes like a possible, and much rumored Hyundai pickup. As you can imagine, all the “players” are at the table for this discussion including automakers, the UAW, third-party suppliers, etc…
The end of the Chicken Tax could be a significant moment in the truck industry around the globe with untold changes.
What do you think? Which truck would you most like to see in the U.S.? What do you think the ending of the Chicken Tax would mean?
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Filed Under: Auto News
Tim, are VW and Hyundai/Kia real threats to Toyota overall and/or in the p/u market segment do you feel? Ford scared of a little Japanese competition? Maybe they should have thought of that before their massive collaborative operations for the past oh, say, three decades(Mazda). If I were the big-3, I might start getting concerned about my half-ton market share. It seems of late that Nissan, Honda, Hyundai and VW all want a piece of the LT market. Must be something they see there because all the investing going on!? New Ridgeline and Cummins/Nissan contract for example. Please elaborate as I want to know your take.
ToyotaDave,
My thoughts here are that if VW and Hyundia bring new trucks to the segment they will not be in full-size, but mid-size. These new trucks could bring full-size customers on the fence, down to the mid-size truck. Now, this hurts the profits of everyone and while Toyota and GM can withstand that profit loss, Ford and Chrysler can not.
What is really interesting to me is the VW Amarok. Considering that it is larger than the Tacoma and not quite as large as the Tundra, could we have a third level of pickups? Could the Tacoma be considered a compact, VW a mid-size and the Tundra a full-size? That would be incredible for customers looking for options.
The truth is that everyone wants a piece of the truck market and nobody really knows where it is going. There have been rumors for years about a possible Scion pickup that would be smaller than the Tacoma. That truck would be a unibody model made for urban cities (think gardeners, suburbanites, etc..) who want the versatility of a pickup, but don’t want the hassle of driving or parking a large vehicle.
In the end, my article is a “what if” type of piece. If the Chicken tax goes away, it could lead to a rebirth of the mid-size truck market and much more competition. For consumers, competition is a good thing. For manufactures, competition isn’t always a good thing.
-Tim
This is interesting because Toyota more or less flipped the script by building in North America.
My Toyota is old enough that it was imported from Japan. To beat the tax in those days, they imported incomplete units. My truck was the cab and chassis. The bed was manufactured in Long Beach, CA I believe.
Now Toyota is a domestic truck, and it’s “the other guys” looking for an advantage. Don’t get me wrong, I think the import tariff is B.S.
Our government starts things, and they never go away. Mohair farmers are still subsidized because it was used to make military uniforms. In WWII!
By the way. I vote for bringing the HiLux to the states. I saw them in Australia and loved them.
You’re not the only one. Lots of people talk about that truck.
-Tim
GoBig,
Yep, the cab and chassis trick is a big part of getting around the tariff. I’m not sure if they still do that anymore, I think that practice was killed along the way.
I don’t know if anyone clicked on the Wiki link, but they made reference to the Subaru Brat. This vehicle was essentially killed with Custom’s officials changed the rules on light-duty trucks. Just another example of the tariff.
That’s funny about the Mohair farmers! Maybe I should go buy a uniform.
-Tim
I forgot about the Brat. I actually owned one for a short time back in high school. Very strange rig indeed. It was basically a mini 4wd El Camino. (mine was a 1979)
What Ford is doing with the Transit (Transvestite) is exactly the same as Mercedes Benz has done with their Sprinter van since 2002. They are “refitted” at a plant in South Carolina.
The whole tax thing is ridiculous.
In addition, the euro version of the Sprinter gets better fuel mileage and runs cleaner than the NAFTA version which has to be retrofitted with a whole bunch of obsolete emissions add-ons mandated by the EPA and CARB.
Mendonsy,
Interesting on the Sprinter van and I would have guessed that was the case. It will be interesting to see how this all plays out.
I would guess the Euro version will start to run more like the NAFTA version soon. I hear that the EU is changing up their emissions requirements and this will bring them more inline with U.S. standards.
-Tim
The auto/truck industry is a global entity. It’s foolish for any government to think they can outsmart corporate players and take their profits away. Unions got runaway shop laws years ago and look where that got them. It’s illegal to move production to another state with the purpose of not bargaining with a Union. So much for that law and so much for Detroit.
I may put a big Made in USA sticker on my 2006 Ram just to see how many people inform me that the truck was built in Mexico. Rednecks are really easy to fool. So when I go hunting and come back to the truck people will have thrown rocks at the Toyotas and not my Dodge.
The big Three and UAW need to focus on building the best trucks and stop wasting their time worrying about where the competition is built.
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Now I have a question. About this Hilux thing. What is a Hilux that the Tacoma is not?
I always though the Tacoma and Hilux were the same thing sold in different countries with different names. Obviously more to it then that and I don’t know what it is.
Larry,
The Hi-Lux has subtle differences to my knowledge. It is smaller, has a Diesel engine and is often considered one of the most durable trucks in the world. The look is also meant to look more rugged.
I have heard the new Ford Ranger is giving it a run for its money.
A lot of good info Tim. I didn’t know about that tax and how many are getting over it.
Thanks Mickey. It will be interesting to see what happens.
With this tax and the CAFE regulations, the truck market could have some big changes coming its way.
-Tim