Why did the chicken cross the road? We’re not exactly sure, but it might have been to avoid being taxed.
Most taxes and tariffs get updated over the years, but one, known as the “chicken tax,” has been in place since 1963. And while it originally started over poultry, it still has an effect on automakers—some of whom have come up with some interesting ways to get around it.
Rather than just a strange name, the chicken tax actually was all about chicken. American farmers were producing too much of it. Processing companies began sending the excess to Europe, where it could be sold for less than the cost of domestically produced chicken.
Consumers loved the price, but European governments didn’t like what it was doing to farmers. In 1962, to protect local economies, the European Economic Community slapped a hefty tariff onto imported chicken.
Not wanting to lose such a lucrative outlet, the U.S. tried but failed to have the tariff overturned. So in December of 1963, President Lyndon Johnson fought back with a tax on products coming to America from Europe. There would be 25 percent added to brandy, potato starch, a food and manufacturing starch called dextrin, and light-duty trucks.
That automotive inclusion seems strange today, given that everything else involved food. It was because Volkswagen sales were rising steadily. From the two Beetles sold in America in 1949, the company was up to 240,143 vehicles by 1963. The vast majority of those were Bugs, but Volkswagen’s van was becoming popular. The idea was that the money Volkswagen made on the vans was equal to what America was making on the chicken it sent over.
(That was the official story, anyway, but it’s easy to believe that the American automakers and autoworkers’ union were doing some lobbying as well.)
With such a wide net, more than just European companies were hit. They were still just a tiny fraction of the American market, but the Japanese exported trucks such as the Datsun 320 and Toyota Stout. Of course, as with any tariff, as soon as it was enacted, companies were trying to figure out ways to get around it.
The easiest way was to ship the truck as a chassis cab, and then bolt on the box once everything arrived in the U.S. The vehicle was still taxed, but only at four per cent. The domestic automakers would eventually take advantage of this situation themselves, importing small trucks — the Chevrolet LUV, built by Isuzu, and the Ford Courier, made by Mazda — from their overseas affiliates and then finishing their construction on American soil.
Subaru, which was trying to increase its North American presence as inexpensively as possible, found an interesting loophole in the tax code. For its 1977 Brat compact pickup truck, the company put two rear-facing seats in the bed. That qualified it as a passenger vehicle rather than a truck, avoiding the tariff.
The chicken tax did have a positive effect on the American economy as Japanese automakers, keen on the profits to be made in this truck-hungry market, built factories in the U.S. to produce their trucks. The Nissan Titan and Frontier, Toyota Tundra and Tacoma, and Honda Ridgeline are all built in the U.S. Ironically, it would primarily be the domestic manufacturers that shifted some of their truck production from the U.S. to Mexico, once the free-trade agreements made it possible for them to do so.
That wider range of local production means that the chicken tax has minimal impact on pickup trucks today, but it still affects some of the European-style work vans that have become popular here.
Nissan builds its full-size NV and compact NV200 cargo vans in the U.S. and Mexico, respectively, so they’re not subject to the tax. GM’s full-size Chevrolet Express and GMC Savana have always been built in the U.S., while its new compact City Express is a Chevrolet-trimmed version of the NV200 that it buys from Nissan. Ford’s full-size Transit is made in the U.S., while Ram’s big ProMaster comes from a plant in Mexico.
But the compact Transit Connect, ProMaster City, and Mercedes-Benz’s full-size Sprinter are all made overseas, and that’s where the loophole creativity comes in.
The first Transit Connects in the U.S. market came from Turkey, but Ford only imported the five-seater wagon version. It was considered a passenger vehicle and arrived at a mere 2.5 percent tax. Once it was in the U.S., workers ripped out the seats, put in the cargo floor, and, if the customer had ordered a windowless van, added a metal panel in place of the sliding-glass door.
U.S. customs finally cracked down on it, insisting that they were primarily utility vehicles and enforcing a higher tax. Ford paid it and then appealed the ruling, even though it still supports the chicken tax as a protectionist measure to prevent cheap imports from countries with lower manufacturing costs.
The current-generation Transit Connect now comes from a plant in Spain, and Ford still imports it as a wagon and does the conversion, as does Ram with the Turkish-built ProMaster City. As mentioned, for a windowless sliding door, both companies substitute a panel in the window opening. The kicker? If the customer wants a window there — saving the automakers the expense and trouble of replacing it — it’s an extra-charge option.
There’s a cost involved in the conversion, of course, but it’s still less than paying the chicken tax on each one. The seats aren’t reused but shredded, with as much recycled as possible.
Rather than retrofit passenger vans into cargo versions, Mercedes-Benz undertakes a more complicated path. The vans are completely built and tested in Germany. Then they’re disassembled and packed in crates bound for Charleston, South Carolina. That’s where they’re put back together, but only after some extremely thorough cross-checking of the serial numbers. To get around the tariff, not only does the engine have to be separated from its van, but the two have to come over on different ships.
All of this is strictly to get around taxes in the U.S. Since Canada wasn’t part of the tax war, cargo vans can be imported without the hefty chicken surcharge. A quick way to identify a Canadian-market ProMaster City from a U.S. one, for example, is to look at the sliding door: ours are solid, while American vans have the seam where the window was replaced.
The taxes were lifted off brandy and starch long ago. Only the truck tax remains, and it’s still at 25 percent. But its days could potentially be numbered if the Trans-Pacific Partnership (TPP) trade deal goes through. Vehicles would no longer be taxed at that high rate, but they’d still have to go through the expensive process of homologation before they could be sold here, which means it’s unlikely something like the global Ford Ranger would land on our doorstep the next day. And if the chicken tax is repealed under the TPP, it would bring an end to what has to be one of the strangest tariff wars in America’s history.