Creative Ways Around Import Tax Barriers As government leaders discuss trade issues, a story in this week's The Wall Street Journal reported on some of the bizarre trade rules that are still on the books. Reporter Matthew Dolan tells Linda Wertheimer about a story he dug up on how Ford Motor Company does some fancy maneuvering to get around an import tax that started in the 1960s with chickens.
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Creative Ways Around Import Tax Barriers

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Creative Ways Around Import Tax Barriers

Creative Ways Around Import Tax Barriers

Creative Ways Around Import Tax Barriers

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As government leaders discuss trade issues, a story in this week's The Wall Street Journal reported on some of the bizarre trade rules that are still on the books. Reporter Matthew Dolan tells Linda Wertheimer about a story he dug up on how Ford Motor Company does some fancy maneuvering to get around an import tax that started in the 1960s with chickens.

LINDA WERTHEIMER, host:

As government leaders meet to talk about trade, a story in The Wall Street Journal this week reminds us of some of the bizarre trade rules that are on the books today. Reporter Matthew Dolan dug up a story of how Ford Motors does some fancy maneuvering to get around an import tax that started in the 1960s with chickens. We called Matt Dolan to untangle this tale.

Thank you for joining us.

Mr. MATTHEW DOLAN (Wall Street Journal): My pleasure.

WERTHEIMER: Now, this sounds complicated, but let's begin at the beginning, in the 1960s, Europeans slapped a tariff on American chickens. What happened then?

Mr. DOLAN: Well, the United States decided that they weren't going to take that lying down and so they retaliated. But in all good trade wars, you can't retaliate with too much specificity, so what they did was to place a tax on four items. The biggest item was on large trucks and vans. At the time, Volkswagen had a very strong business in the United States with its vans, so the retaliation was really against the Germans.

WERTHEIMER: So how does this affect Ford?

Mr. DOLAN: It's sort of a strange tale, as you mentioned in the introduction. What happened was that because foreign automakers were unable to really import their vehicles, their trucks and vans into the U.S., the Detroit Big Three were able to create an entire light truck market with very little competition from the outside. But then since then, if they've wanted to import any trucks on their own from other countries, now that they're fully global automakers, they've had a very tough time. And so, Ford in this case...

WERTHEIMER: You mean Ford can't bring its own trucks in?

Mr. DOLAN: They can, but the levy is very high. It's 25 percent, meaning that every vehicle that comes in to the United States that they build elsewhere, either a truck or a van, is going to be slapped with this 25 percent tax. So what Ford has done is they bring in the vehicle as a so-called passenger vehicle - because if it's considered a passenger vehicle it's only taxed at 2.5 percent. But what they do is they bring it into the United States with seats and side windows and then once they get it passed customs, they take out the rear seats and they replace the windows with panels.

WERTHEIMER: So Ford brings their trucks in in disguise.

Mr. DOLAN: Well, Ford wouldn't say that.

(Soundbite of laughter)

Mr. DOLAN: I think, you know, we'll let sort of the process speak for itself. But essentially, they bring it in and they say that yes, this is a wagon vehicle. It's a passenger wagon vehicle which we then modify for the customers.

(Soundbite of laughter)

Mr. DOLAN: The problem is, is that all the customers are businesses and the businesses don't generally need the second row of seats and the windows and...

WERTHEIMER: What happens to those seats and those windows?

Mr. DOLAN: Oh, that's very interesting. I was first turned on to the story by a rumor that the seats were actually being sent back to Turkey and recycled. Essentially...

(Soundbite of laughter)

Mr. DOLAN: ...the same row of seats were being used over and over and over again. Ford says no, that's not true although, they did consider that. No, the seats are recycled - Ford is promoting itself these days as a very green company. So the seats are sent off to a higher recycler where they are broken down, the fabric is shredded and the glass for the windows is also recycled. So Ford saves an incredible amount of money. Probably spends hundreds of dollars to save thousands of dollars.

WERTHEIMER: So what is the moral of this story, Matt Dolan?

Mr. DOLAN: I think what it shows is that when these tax barriers are erected, they do stand the test of time miraculously so. And in this case, you sort of have to wonder what the purpose is being served in the long haul, because this started off as a trade war over chickens and what this ended up doing is really causing auto manufacturers to have to scratch their heads. And if they don't want to pay the tax they have to come up with some pretty creative solutions.

WERTHEIMER: Matt Dolan covers the auto industry in Detroit for The Wall Street Journal.

Thanks very much.

Mr. DOLAN: Sure thing.

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