Tax regulations

Ford faces potential fine of $ 1.3 billion for circumventing ‘chicken tax’ regulations with Transit Connect imports

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In the 1940s, the US government implemented a cash prize for chicken farmers who could produce larger birds in less time.e. Here, in 2021, the domino effect has made its way around the world as Ford potentially faces a $ 1.3 billion fine for importing Transit Connect vans into from Turkey. These two sentences are related, I promise.

Before I make that connection a bit more obvious, here’s the situation. According to ReutersDetroit automaker faces US charge Customs and border protection unpaid duties totaling $ 181 million, and an additional monetary penalty “up to $ 652 million to $ 1.3 billion”. The case has been in court for a few years now, although it now appears to be settled as the Supreme Court refused to hear Ford’s appeal last year.

Ford imported Transit Connects as passenger cars and had a separate refinishing facility in the United States, which allowed the company to remove the rear seats and take them apart to convert them to vans. This was done because vans are hit at a 25 percent tariff, while passenger vehicles are only levied a 2.5 percent tariff. All vans and pickup trucks are hit by this massive tax, which dates back to 1963.

The government claims that Ford intentionally misled customs and customers by equipping these Transit Connect vehicles with inexpensive rear seats meant only to be thrown in the trash. Ford refutes the claims, stating that each seat in the vehicle was fitted with all of the standard safety equipment required to be legal on the streets and qualified as passenger vehicles when the cars passed customs inspection.

The Chicken Boom

Okay, now that we know what Ford is up against, let’s take a closer look at why. I’m not going to go back as far as the dawn of the chicken industry in the United States and its direct connection to pre-war slavery, but I will start with World War II, however. You see, during World War II, the government placed restrictions on the amount of beef and pork American families could purchase in wartime, as the food supply was needed to fuel the war effort. Chicken was cheap and plentiful, so it began to supplant other meats in the American diet.

After the demand for war declined as Americans were then allowed to buy beef and pork again. In an effort to keep the chicken industry alive, the government has challenged producers; Create the super chicken of the future to increase the efficiency of your growth. The goal was to breed a bird that would not only get bigger in less time, but also have more meat on the bone. There was a $ 5,000 cash prize for the plumpest and most efficient birds in the country. Obviously they were successful, and all of a sudden the United States became a big exporter of frozen poultry.

In an effort to save their own The national chicken production industry, France initially instituted a massive tariff on imported chicken to keep prices high and farms profitable. West Germany and other members of the European Economic Community, Luxembourg, Belgium, the Netherlands and Italy followed. Charges were made that American chicken farmers were selling chicken in Europe below cost to shut down domestic production, American chicken hormones were harming men in France and these birds were being fed dangerous levels of arsenic to promote muscle growth. The resulting loss of European sales cost the American poultry industry about $ 28 million in 1962, which we call a lot in the business.

After several months of trying to find a diplomatic solution to what was then called the Chicken War, no one met in the middle and the American chicken industry was suffering without its regular exports. In retaliation for the EEC tariff, President Lyndon B Johnson imposed a tax on goods imported from Europe in December 1963. The original idea was a hefty 25 percent tariff on things like potato starch. , chemical dextrin and digestive brandy after dinner. . That alone would have been significant, but a fateful meeting with the president of the United Auto Workers union would have lasting consequences. This is where we start talking about cars again!

Volkswagen Van and the UAW strike

The many different flavors of the iconic Volkswagen pickup had become in high demand by the early 1960s. These vans were reliable, inexpensive and fuel efficient. The Type 2 minivan was offered in a variety of minivan and commercial pickup configurations, providing a great alternative to the big American pickup trucks and full-size vans of the day. As a result, these vans and trucks were selling like hot cakes, slashing sales for Ford, Dodge and Chevrolet.

President Johnson was on the verge of re-election in 1964 and desperately wanted to avoid a UAW strike to prevent the economy from falling under his tenure. In a meeting with UAW President Walter Reuther, Johnson offered a quid pro quo. If Reuther prevented his union from striking, the president would include imports of light trucks in his retaliatory tariff on Europe, thus killing the sales windfall of the Volkswagen van. The deal was made, truck imports were taxed at 25% and LBJ was re-elected.

What is the chicken tax?

President Johnson’s tariff became known as the Chicken Tax. He forced importers, like Volkswagen, to pay a 25 percent import tax to the US government for every light truck or commercial van he brought into the country. This tax increased the prithat of the pickup truck, and its price was no longer competitive with American-made options. Because it applied to all imported trucks and vans, Japanese automakers were also affected by this, although they had no qualms about the American chicken industry.

By 1964, imports of light trucks and commercial vans were about a third of what they were in ’63, and by ’65 import brands had all but disappeared from the US market. Without fierce competition from smaller, lighter, easier to drive and more fuel efficient imported pickup trucks and vans, Detroit automakers were no longer required to keep pace with foreign brands’ innovation. While this protected the Big Three automakers in the short term, increased competition may have forced them to develop trucks and vans more in line with what American car buyers proved they wanted in the early years. 1960.

It’s a little ironic that Ford, one of the manufacturers that the chicken tax was supposed to support, has potentially fallen into its hands. The Transit Connect was an excellent van, but it’s possible that this massive fine would nullify Ford’s entire profit strategy for this vehicle and prevent the company from trying to import one of its small vans or trucks to the to come up. I guess that’s the purpose of the fine.

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