Chicken tax

Last updated May 21, 2024

The Chicken Tax is a 25 percent tariff on light trucks (and originally on potato starch, dextrin, and brandy) imposed in 1964 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.^[1] The period from 1961 to 1964^[2] of tensions and negotiations surrounding the issue was known as the "Chicken War", taking place at the height of Cold War politics.^[3]

Eventually, the tariffs on potato starch, dextrin, and brandy were lifted,^[4] but since 1964 this form of protectionism has remained in place to give US domestic automakers an advantage over imported competitors.^[5] Though concern remains about its repeal,^[6]^[7] a 2003 Cato Institute study called the tariff "a policy in search of a rationale."^[4]

As an unintended consequence, several importers of light trucks have circumvented the tariff via loopholes, known as tariff engineering. For example, Ford, which was one of the main beneficiaries of the tax, also evaded it by manufacturing first-generation Transit Connect light trucks for the US market in Turkey; these Transits were fitted-out as passenger vehicles, which allowed Ford to evade the Chicken tax when the vehicles passed customs in the US. The Transits were stripped pre-sale of their rear seats and seatbelts, at a Ford warehouse near Baltimore.^[1] In 2020, after an exhaustive battle between Customs and Border Protection (CBP) and Ford, Ford's appeal to the Supreme Court of the United States to hear arguments stemming from a June 7, 2019^[8] reversal of a Court of International Trade decision was denied, and Ford was ordered to pay the deficient duties and almost $1.3 billion USD in penalties.^[9] Similarly, to import cargo vans built in Germany, Mercedes disassembled fully-completed vehicles and shipped the components to "a small kit assembly building" in South Carolina, where they were reassembled.^[10] The resulting vehicles emerged as locally manufactured, free from the tariff.

Background

One columnist for Atlantic Monthly bemoaned the effect of industrialized chicken production on the quality of the chicken that the U.S. was exporting, calling it a "battery-bred, chemically fed, sanitized, porcelain-finished, money-back-if-you-can-taste-it bird". A cartoon accompanying the column portrays chicken being fed into a machine—the "Instofreezo Automatic Food Processor, Packager & Deflavorizer, A Product of the U.S.A." A production executive stands atop the machine as it pumps out cubes of generic chicken food product, which threaten to engulf the globe.^[11]

Largely because of post–World War II intensive chicken farming and accompanying price reductions, chicken, once internationally synonymous with luxury, became a staple food in the U.S.^[12] Before the early 1960s, not only had chicken remained prohibitively expensive in Europe, but it had also remained a delicacy.^[13] With imports of inexpensive chicken from the U.S., chicken prices fell quickly and sharply across Europe, radically affecting European chicken consumption.^[13] In 1961, per capita chicken consumption rose up to 23% in West Germany.^[13] U.S. chicken captured nearly half of the imported European chicken market.^[13]

Subsequently, the Dutch accused the U.S. of dumping chickens at prices below cost of production.^[13] The French government banned U.S. chicken and raised concerns that hormones could affect male virility.^[13] German farmers' associations accused U.S. poultry firms of fattening chicken artificially with arsenic.^[13]

Coming on the heels of a "crisis in trade relations between the U.S. and the Common Market,"^[13] Europe moved ahead with tariffs, intending that they would encourage Europe's postwar agricultural self-sufficiency.^[14] European markets began setting chicken price controls.^[13] France introduced the higher tariff first, persuading West Germany to join them—even while the French hoped to win a larger share of the profitable German chicken market after excluding U.S. chicken.^[3] Europe adopted the Common Agricultural Policy, imposing minimum import prices on all imported chicken and nullifying prior tariff bindings and concessions.

Beginning in 1962, the U.S. accused Europe's Common Market of unfairly restricting imports of American poultry. By August 1962, U.S. exporters had lost 25% of their European chicken sales.^[13] Losses to the U.S. poultry industry were estimated at $26—$28 million^[3] (equivalent to $261.89—$282.03 million in 2023).

Senator J. William Fulbright, chairman of the Senate Foreign Relations Committee and Democratic Senator from Arkansas, a chief U.S. poultry-producing state, interrupted a NATO debate on nuclear armament to protest trade sanctions on U.S. chicken,^[3] going so far as to threaten cutting U.S. troops in NATO. Konrad Adenauer, then Chancellor of Germany, later reported that President John F. Kennedy and he had a great deal of correspondence over a period of two years, about Berlin, Laos, the Bay of Pigs Invasion, "and I guess that about half of it has been about chickens."^[3]^[13]

Diplomacy failure and the UAW

Diplomacy failed after 18 months,^[4]^[15] and on December 4, 1963, President Johnson imposed a 25% tax (almost 10 times the average U.S. tariff) by executive order (Proclamation 3564)^[16] on potato starch, dextrin, brandy, and light trucks, effective from 7 January 1964.^[16]

With Johnson's proclamation,^[4] the U.S. had invoked its right under the General Agreement on Tariffs and Trade (GATT),^[14] whereby an offended nation may increase tariffs by an equal amount to losses from discriminating tariffs. Officially, the tax targeted items imported from Europe approximating the value of lost American chicken sales to Europe.^[17]

In retrospect, audio tapes from the Johnson White House, revealed a quid pro quo unrelated to chicken. In January 1964, President Johnson attempted to convince United Auto Workers' president Walter Reuther not to initiate a strike just before the 1964 election and to support the president's civil-rights platform. Reuther, in turn, wanted Johnson to respond to Volkswagen's increased shipments to the United States.^[17]

The Chicken Tax directly curtailed importation of German-built Volkswagen Type 2s in configurations that qualified them as light trucks, that is, commercial vans and pickups.^[17]

In 1964, U.S. imports of "automobile trucks" from West Germany declined to a value of US$5.7 million—about one-third the value imported in the previous year (equivalent to $56 million in 2023). Soon after, Volkswagen cargo vans and pickup trucks, the intended targets, "practically disappeared from the U.S. market."^[4]

VW Type 2s were not the only vehicle line affected. As a direct result of the Chicken Tax, Japanese automakers Toyota (with its Publica, Crown, and Corona coupe utes), Datsun (Sunny truck), Isuzu (Wasp), and Mazda (Familia), which were selling pickup trucks, coupe utility vehicles, and panel deliveries in the US at the time, pulled these models out of the North American and Caribbean markets and did not bring over many models sold elsewhere.

Ramifications

The tariff affected any country seeking to bring light trucks into the U.S. and effectively "squeezed smaller Asian truck companies out of the American pickup market."^[18] Over the intervening years, Detroit lobbied to protect the light-truck tariff, thereby reducing pressure on Detroit to introduce vehicles that polluted less and that offered increased fuel economy.^[17]

As of March 2023^[update], the 1964 tariff of 25% remains levied on imported light trucks.^[19] Robert Z. Lawrence, professor of international trade and investment at Harvard University, contends the tax crippled the U.S. automobile industry by insulating it from real competition in light trucks for 40 years.^[20]^{[ unreliable source? ]}

Circumventing the tariff

Japanese manufacturers initially found they could export "chassis cab" configurations (which included the entire light truck, less the cargo box or truck bed) with only a 4% tariff.^[4] A truck bed would subsequently be attached to the chassis in the United States and the vehicle could be sold as a light truck. Examples included the Chevrolet LUV and Ford Courier. The "chassis-cab" loophole was closed in 1980.^[4] From 1978 to 1987, the Subaru BRAT carried two rear-facing seats (with seatbelts and carpeting) in its rear bed to meet classification as a "passenger vehicle" and not a light truck.

The U.S. Customs Service changed vehicle classifications in 1989, automatically relegating two-door SUVs to light-truck status.^[4] Toyota Motor Corp., Nissan Motor Co., Suzuki (through a joint venture with GM), and Honda Motor Co. eventually built assembly plants in the U.S. and Canada in response to the tariff.^[1]

From 2001 to 2006, cargo van versions of the Mercedes and Dodge Sprinter were manufactured in assembly kit form in Düsseldorf, Germany, then shipped to a factory in Gaffney, South Carolina, for final assembly with a proportion of locally sourced parts complementing the imported components.^[21]^{[ unreliable source? ]} The cargo versions would have been subject to the tax if imported as complete units, thus the importation in knock-down kit form for U.S. assembly.^[22]

Ford imported all of its first-generation Ford Transit Connect models as "passenger vehicles" by including rear windows, rear seats, and rear seat belts.^[1] The vehicles are exported from Turkey on ships owned by Wallenius Wilhelmsen Logistics (WWL), arrive in Baltimore, and are converted back into light trucks at WWL's Vehicle Services Americas, Inc. facility by replacing rear windows with metal panels and removing the rear seats and seat belts.^[1] The removed parts are not shipped back to Turkey for reuse, but shredded and recycled in Ohio.^[1] The process exploits the loophole in the customs definition of a light truck; as cargo does not need seats with seat belts or rear windows, presence of those items automatically qualifies the vehicle as a "passenger vehicle" and exempts the vehicle from "light truck" status. The process costs Ford hundreds of dollars per van, but saves thousands in taxes.^[1] U.S. Customs and Border Protection estimated that between 2002 and 2018 the practice saved Ford $250 million in tariffs.^[23]

Customs and Border Protection (CBP) ruled in 2013 that Transit Connects imported by Ford as passenger wagons and later converted into cargo vans should be subject to the 25% duty rate applicable to vans and not to the 2.5% rate applicable to passenger vehicles. Ford sued and finally, in 2020, the Supreme Court declined to hear the case which confirmed the position of CBP.^[24]

Chrysler introduced the Ram ProMaster City, an Americanized version of the Fiat Doblò, in 2015 — building the vehicle at the Tofaş plant in Turkey, importing only passenger configurations and subsequently converting cargo configurations.

In 2009, Mahindra & Mahindra Limited announced it would export pickup trucks from India in knock-down kit form, again to circumvent the tax.^[5] These are complete vehicles that can be assembled in the U.S. from kits of parts shipped in crates.^[5]^[25] The export plans were later cancelled.

Light trucks manufactured in Mexico and Canada, such as the Ram series of trucks manufactured in Saltillo, Mexico, and Canadian-built Chevrolet, GMC, and Ford truck models, are not subject to the tax under the North American Free Trade Agreement, and from July 1, 2020, the United States–Mexico–Canada Agreement.

Related Research Articles

A pickup truck or pickup is a light or medium duty truck that has an enclosed cabin, and a back end made up of a cargo bed that is enclosed by three low walls with no roof. In Australia and New Zealand, both pickups and coupé utilities are called utes, short for utility vehicle. In South Africa, people of all language groups use the term bakkie; a diminutive of Afrikaans: bak, meaning bowl or container.

A van is a type of road vehicle used for transporting goods or people. Depending on the type of van, it can be bigger or smaller than a pickup truck and SUV, and bigger than a common car. There is some variation in the scope of the word across the different English-speaking countries. The smallest vans, microvans, are used for transporting either goods or people in tiny quantities. Mini MPVs, compact MPVs, and MPVs are all small vans usually used for transporting people in small quantities. Larger vans with passenger seats are used for institutional purposes, such as transporting students. Larger vans with only front seats are often used for business purposes, to carry goods and equipment. Specially equipped vans are used by television stations as mobile studios. Postal services and courier companies use large step vans to deliver packages.

The Subaru BRAT is a light-duty, four-wheel drive coupé utility, version of the Subaru Leone originally introduced in 1977. The BRAT was developed directly from the company's four-wheel drive station wagon model and was first introduced as a 1978 model – following the concept of coupe utilities such as the Chevrolet El Camino and the Ford Ranchero. The BRAT is also known as a Brumby, MV Pickup or Shifter depending on where it was sold. The vehicle was sold from 1978 until 1994.

Light truck or light-duty truck is a US classification for vehicles with a gross vehicle weight up to 8,500 pounds (3,860 kg) and a payload capacity up to 4,000 pounds (1,814 kg). Similar goods vehicle classes in the European Union, Canada, Australia, and New Zealand are termed light commercial vehicles and are limited to a gross vehicle weight of up to 3,500 kg.

The Ford Transit is a family of light commercial vehicles manufactured by the Ford Motor Company since 1965, primarily as a cargo van, but also available in other configurations including a large passenger van, cutaway van chassis, and a pickup truck. The vehicle is also known as the Ford T-Series, a nomenclature shared with Ford's other light commercial vehicles, the Ford F-Series trucks, and the Ford E-Series chassis. As of 2015, 8 million Transit vans have been sold, making it the third best-selling van of all time and has been produced across four basic platform generations, with various "facelift" versions of each.

The Volkswagen Type 2 is a forward control light commercial vehicle introduced in 1950 by the German automaker Volkswagen as its second car model. Known officially as the Transporter, Kombi or Microbus, or, informally, as the Volkswagen Station Wagon (US), Bus, Camper (UK) or Bulli (Germany), it was given the factory designation Type 2 as it followed – and was initially derived from – Volkswagen's first model, the Type 1 (Beetle).

The Ford E-Series is a range of full-size vans manufactured and marketed by the Ford Motor Company. Introduced for 1961 as the replacement of the Ford F-Series panel van, four generations of the model line have been produced. Marketed for both cargo and passenger transport configurations, the E-Series has been designed with multiple design variations for both retail and commercial sale, including vans, and commercial-grade cutaway van chassis and stripped chassis.

Ford Courier is a model nameplate used by Ford since the early 1950s. The Courier moniker has been used on a variety of vehicles all around the world since it was first used in North America for a sedan delivery. The Courier nameplate was also used by Ford for a series of compact pickup trucks and would also see use by Ford of Europe denoting a Fiesta-based panel van. Ford Brazil used the nameplate for a Fiesta-based coupe utility pickup marketed across Latin America.

The GAZelle is a series of light commercial vehicle—pickup trucks, vans and minibuses—made by Russian car manufacturer GAZ. At the time of the dissolution of the Soviet Union and transition to a market economy, the Russian automobile industry had not produced a much-demanded LCV similar to the Ford Transit or VW T4 class. The GAZelle shares many parts with the company's passenger cars ; in fact, models produced until 1998 had the same grille. Riga Autobus Factory, which formerly manufactured minibuses for the whole USSR, remained in Latvia, and now required its vehicles be sold to the now-foreign Russian market for hard currency. Responding to this market opportunity, GAZ swiftly developed its own LCV called GAZelle, which, taken together with its lighter version, Sobol, now account for the majority of the Russian van and light truck market and have strong positions in the markets of other CIS countries, ranking as GAZ's most popular and successful products.

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A knock-down kit is a collection of parts required to assemble a product. The parts are typically manufactured in one country or region, and then exported to another country or region for final assembly.

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The Ford Transit Connect is a compact panel van sold by Ford since 2002. Developed by Ford of Europe, the model line replaced sedan-based vans with a dedicated commercial vehicle platform. The model line is the second-smallest vehicle of the Ford Transit range, slotted between the Ford Transit Courier LAV and the Ford Transit Custom LCV/MPV. In line with other Ford Transit variants, passenger-oriented models are marketed as the Ford Tourneo Connect with side windows and rear seats.

The Mazda B series is a series of pickup trucks that was manufactured by Mazda. Produced across five generations from 1961 to 2006, the model line began life primarily as a commercial vehicle, slotted above a kei truck in size. Through its production, Mazda used engine displacement to determine model designations; a B1500 was fitted with a 1.5 L engine and a B2600, a 2.6 L engine.

A panel van, also known as a blind van, car-derived van or sedan delivery, is a small cargo vehicle with a passenger car chassis, typically with a single front bench seat and no side windows behind the B-pillar. Panel vans are smaller than panel trucks or cargo vans, both of which use body-on-frame truck chassis.

Toyota Auto Body California (TABC) is a manufacturing plant in Long Beach, California. Established in 1972, TABC was the first Toyota plant in North America. A subsidiary of Toyota Motor North America, the plant occupies 30 acres (12 ha).

The Isuzu Faster is a pickup truck that was manufactured and marketed by Isuzu between 1972 and 2002 over three generations. It was sold under myriad different nameplates, most commonly they were marketed under their respective model codes: Isuzu KB for the first and second generations, TF for the third. In Japan, the "Faster" name was eventually supplanted by Rodeo. It was also marketed under a number of other brands from the General Motors portfolio. The Faster was succeeded worldwide by Isuzu D-Max, except in Japan and North America.

The Volkswagen Transporter, based on the Volkswagen Group's T platform, now in its seventh generation, refers to a series of vans produced for over 70 years and marketed worldwide.

As of 2019, the automotive industry in Thailand is the largest in Southeast Asia and the 10th largest in the world. The Thai industry has an annual output of more than two million vehicles, more than countries such as Belgium, Canada, the United Kingdom, Italy, Czech Republic and Turkey.

Tariff engineering refers to design and manufacturing decisions made primarily so that the manufactured good is classified at a lower rate for tariffs than it would have been absent those decisions. It is a loophole whereby an importer pays a lower tariff by changing the intended import such that the importer has a lesser tariff burden.

References

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