Chicken tax
Encyclopedia
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
on potato starch
Potato starch
Potato starch is starch extracted from potatoes. The cells of the root tubers of the potato plant contain starch grains . To extract the starch, the potatoes are crushed; the starch grains are released from the destroyed cells...
, dextrin
Dextrin
Dextrins are a group of low-molecular-weight carbohydrates produced by the hydrolysis of starch or glycogen. Dextrins are mixtures of polymers of D-glucose units linked by α- or α- glycosidic bonds....
, brandy
Brandy
Brandy is a spirit produced by distilling wine. Brandy generally contains 35%–60% alcohol by volume and is typically taken as an after-dinner drink...
, and light truck
Light truck
Light truck or light duty truck is a U.S. classification for trucks or truck-based vehicles with a payload capacity of less than 4,000 pounds...
s imposed in 1963 by the United States under President Lyndon B. Johnson
Lyndon B. Johnson
Lyndon Baines Johnson , often referred to as LBJ, was the 36th President of the United States after his service as the 37th Vice President of the United States...
as a response to tariffs placed by France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
on importation of U.S. chicken
Chicken
The chicken is a domesticated fowl, a subspecies of the Red Junglefowl. As one of the most common and widespread domestic animals, and with a population of more than 24 billion in 2003, there are more chickens in the world than any other species of bird...
. The period from 1961–1964 of tensions and negotiations surrounding the issue, which took place at the height of Cold War
Cold War
The Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World—primarily the Soviet Union and its satellite states and allies—and the powers of the Western world, primarily the United States...
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
Cato Institute
The Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the conglomerate Koch Industries, Inc., the largest privately held...
study called the tariff "a policy in search of a rationale."
As an unintended consequence
Unintended consequence
In the social sciences, unintended consequences are outcomes that are not the outcomes intended by a purposeful action. The concept has long existed but was named and popularised in the 20th century by American sociologist Robert K. Merton...
, several importers of light trucks have circumvented the tariff via loopholes—including Ford
Ford Motor Company
Ford Motor Company is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford and Lincoln brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK...
(ostensibly a company the tax was designed to protect), which currently imports the Transit Connect light trucks as "passenger vehicles" to the U.S. from Turkey and immediately shreds portions of their interiors in a warehouse outside Baltimore.
Background
Largely because of post-World War II intensive chicken farming and accompanying price reductions, chicken, once internationally synonymous with luxury, became a staple foodStaple food
A staple food is one that is eaten regularly and in such quantities that it constitutes a dominant portion of a diet, and that supplies a high proportion of energy and nutrient needs. Most people live on a diet based on one or more staples...
in the U.S. Prior to the early 1960s, not only had chicken remained prohibitively expensive in Europe, it had remained a delicacy. With imports of inexpensive chicken from the U.S., chicken prices fell quickly and sharply across Europe, radically affecting European chicken consumption. In 1961, per capita chicken consumption rose 23% in West Germany. U.S. chicken overtook nearly half of the imported European chicken market.
Subsequently, the Dutch accused the U.S. of dumping chickens at prices below cost of production. The French government banned U.S. chicken and raised concerns that hormones could affect male virility. German farmers' associations accused U.S. poultrymen of artificially fattening chicken with arsenic. In fact, U.S. chicken farmers, with Food and Drug Administration
Food and Drug Administration
The Food and Drug Administration is an agency of the United States Department of Health and Human Services, one of the United States federal executive departments...
approval, had treated chicken feed with antimony
Antimony
Antimony is a toxic chemical element with the symbol Sb and an atomic number of 51. A lustrous grey metalloid, it is found in nature mainly as the sulfide mineral stibnite...
, arsenic compounds
Arsenic
Arsenic is a chemical element with the symbol As, atomic number 33 and relative atomic mass 74.92. Arsenic occurs in many minerals, usually in conjunction with sulfur and metals, and also as a pure elemental crystal. It was first documented by Albertus Magnus in 1250.Arsenic is a metalloid...
, or estrogen
Estrogen
Estrogens , oestrogens , or œstrogens, are a group of compounds named for their importance in the estrous cycle of humans and other animals. They are the primary female sex hormones. Natural estrogens are steroid hormones, while some synthetic ones are non-steroidal...
hormones to stimulate growth
Growth hormone
Growth hormone is a peptide hormone that stimulates growth, cell reproduction and regeneration in humans and other animals. Growth hormone is a 191-amino acid, single-chain polypeptide that is synthesized, stored, and secreted by the somatotroph cells within the lateral wings of the anterior...
.
Coming on the heels of a "crisis in trade relations between the U.S. and the Common Market
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
," Europe moved ahead with tariffs, intending that they would encourage Europe's post-war agricultural self-sufficiency.
European markets began setting chicken price controls. 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. Europe adopted the Common Agricultural Policy
Common Agricultural Policy
The Common Agricultural Policy is a system of European Union agricultural subsidies and programmes. It represents 48% of the EU's budget, €49.8 billion in 2006 ....
, imposing minimum import prices on all imported chicken and nullifying prior tariff bindings
Bound tariff rate
The Bound tariff rate is the most-favored-nation tariff rate resulting from negotiations underthe General Agreement on Tariffs and Trade and incorporated as an integralcomponent of a country’s schedule of concessions or commitments to other World Trade...
and concessions.
Beginning in 1962, the U.S. had accused Europe's Common Market
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...
of unfairly restricting imports of American poultry. By August 1962, U.S. exporters had lost 25% of their European chicken sales. Losses to the U.S. poultry industry were estimated at $26–28 million (over 1.8 billion in 2007 U.S. dollars).
Senator J. William Fulbright
J. William Fulbright
James William Fulbright was a United States Senator representing Arkansas from 1945 to 1975.Fulbright was a Southern Democrat and a staunch multilateralist who supported the creation of the United Nations and the longest serving chairman in the history of the Senate Foreign Relations Committee...
, chairman of the Senate Foreign Relations Committee
United States Senate Committee on Foreign Relations
The United States Senate Committee on Foreign Relations is a standing committee of the United States Senate. It is charged with leading foreign-policy legislation and debate in the Senate. The Foreign Relations Committee is generally responsible for overseeing and funding foreign aid programs as...
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, going so far as to threaten cutting U.S. troops in NATO. Konrad Adenauer
Konrad Adenauer
Konrad Hermann Joseph Adenauer was a German statesman. He was the chancellor of the West Germany from 1949 to 1963. He is widely recognised as a person who led his country from the ruins of World War II to a powerful and prosperous nation that had forged close relations with old enemies France,...
later reported that he and President John F. Kennedy
John F. Kennedy
John Fitzgerald "Jack" Kennedy , often referred to by his initials JFK, was the 35th President of the United States, serving from 1961 until his assassination in 1963....
had a great deal of correspondence over a period of two years, about Berlin
Berlin
Berlin is the capital city of Germany and is one of the 16 states of Germany. With a population of 3.45 million people, Berlin is Germany's largest city. It is the second most populous city proper and the seventh most populous urban area in the European Union...
, Laos
Laos
Laos Lao: ສາທາລະນະລັດ ປະຊາທິປະໄຕ ປະຊາຊົນລາວ Sathalanalat Paxathipatai Paxaxon Lao, officially the Lao People's Democratic Republic, is a landlocked country in Southeast Asia, bordered by Burma and China to the northwest, Vietnam to the east, Cambodia to the south and Thailand to the west...
, the Bay of Pigs Invasion
Bay of Pigs Invasion
The Bay of Pigs Invasion was an unsuccessful action by a CIA-trained force of Cuban exiles to invade southern Cuba, with support and encouragement from the US government, in an attempt to overthrow the Cuban government of Fidel Castro. The invasion was launched in April 1961, less than three months...
, "and I guess that about half of it has been about chickens."
Diplomacy failure and the UAW
Diplomacy failed after 18 months, and on December 4, 1963, two weeks after taking office, President Johnson imposed a 25 percent tax (almost 10 times the average U.S. tariff) on potato starch, dextrin, brandy, and light trucks.With Johnson's Proclamation no. 3564, the U.S. had invoked its right under the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
(GATT), 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.
In retrospect, audio tapes from the Johnson White House, revealed a quid pro quo
Quid pro quo
Quid pro quo most often means a more-or-less equal exchange or substitution of goods or services. English speakers often use the term to mean "a favour for a favour" and the phrases with almost identical meaning include: "give and take", "tit for tat", "this for that", and "you scratch my back,...
unrelated to chicken. In January 1964, President Johnson attempted to convince United Auto Workers
United Auto Workers
The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, better known as the United Auto Workers , is a labor union which represents workers in the United States and Puerto Rico, and formerly in Canada. Founded as part of the Congress of Industrial...
' president Walter Reuther
Walter Reuther
Walter Philip Reuther was an American labor union leader, who made the United Automobile Workers a major force not only in the auto industry but also in the Democratic Party in the mid 20th century...
not to initiate a strike just prior the 1964 election
United States presidential election, 1964
The United States presidential election of 1964 was held on November 3, 1964. Incumbent President Lyndon B. Johnson had come to office less than a year earlier following the assassination of his predecessor, John F. Kennedy. Johnson, who had successfully associated himself with Kennedy's...
and to support the president's civil rights platform. Reuther in turn wanted Johnson to respond to Volkswagen
Volkswagen
Volkswagen is a German automobile manufacturer and is the original and biggest-selling marque of the Volkswagen Group, which now also owns the Audi, Bentley, Bugatti, Lamborghini, SEAT, and Škoda marques and the truck manufacturer Scania.Volkswagen means "people's car" in German, where it is...
's increased shipments to the United States.
The Chicken Tax directly curtailed importation of German-built Volkswagen vans
Volkswagen Type 2
The Volkswagen Type 2, officially known as the Transporter or Kombi informally as Bus or Camper , was a panel van introduced in 1950 by German automaker Volkswagen as its second car model – following and initially deriving from Volkswagen's first model, the Type 1 , it was given the factory...
in configurations that qualified them as light trucks—that is, commercial vans and pickups.
Ramifications
As of November 2010, the 1964 tariff of 25% still affects importation of light trucks. Robert Z. Lawrence
Robert Z. Lawrence
Robert Zachary Lawrence , a former South African national, is the current Albert L. Williams Professor of International Trade and Investment at John F. Kennedy School of Government at Harvard University. He is also a Senior Fellow at the Peterson Institute for International Economics, and a...
, professor of International Trade and Investment at Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
, contends the chicken tax crippled the U.S. automobile industry by insulating it from real competition in light truck
Light truck
Light truck or light duty truck is a U.S. classification for trucks or truck-based vehicles with a payload capacity of less than 4,000 pounds...
s for 40 years.
Circumventing the tariff
Initially, Japanese manufacturers found they could export "cab-chassis" configurations (which included the entire light truck, less the cargo box or truck bed) with only a 4% tariff. Subsequently, a truck bed would be attached to the chassis in the United States and the vehicle could be sold as a light truck. Examples included the Chevrolet LUVChevrolet LUV
The Chevrolet LUV is a pickup truck marketed in the Americas since 1972 by Chevrolet, a division of General Motors . All generations of the LUV pickup have been Japanese Isuzu designs...
and Ford Courier
Ford Courier
- North America :This was a commercial model based on Ford's full-size stationwagon line. Its model code was designated 78A.From 1952 to 1956 access to the rear storage area was through a unique door hinged on the side. For 1957 and 1958, the rear access door was a combination of the lift gate and...
. The "cab-chassis" loophole was closed in 1980. From 1978–1987, the Subaru Brat
Subaru BRAT
The Subaru BRAT was the coupe utility version of the Subaru Leone from the 1970s...
carried two detachable rear-facing seats (with seatbelts and carpeting) in its rear bed, to meet classification as a "passenger vehicle" and not a light truck
Light truck
Light truck or light duty truck is a U.S. classification for trucks or truck-based vehicles with a payload capacity of less than 4,000 pounds...
.
In 1989, the U.S. Customs changed vehicle classifications, automatically relegating two-door SUV's to light truck status. Eventually, in response to the tariff, Toyota Motor Corp., Nissan Motor Co.
Nissan Motors
, usually shortened to Nissan , is a multinational automaker headquartered in Japan. It was a core member of the Nissan Group, but has become more independent after its restructuring under Carlos Ghosn ....
and Honda Motor Co.
Honda
is a Japanese public multinational corporation primarily known as a manufacturer of automobiles and motorcycles.Honda has been the world's largest motorcycle manufacturer since 1959, as well as the world's largest manufacturer of internal combustion engines measured by volume, producing more than...
built assembly plants in the U.S..
From 2001 to 2006, cargo van versions of the Mercedes and Dodge Sprinter were manufactured in Düsseldorf
Düsseldorf
Düsseldorf is the capital city of the German state of North Rhine-Westphalia and centre of the Rhine-Ruhr metropolitan region.Düsseldorf is an important international business and financial centre and renowned for its fashion and trade fairs. Located centrally within the European Megalopolis, the...
, Germany, partially disassembled and shipped to a facility in Gaffney, South Carolina
Gaffney, South Carolina
Gaffney is a city in and the county seat of Cherokee County, South Carolina, United States, in the upstate region of South Carolina. Gaffney is also sometimes referred to as the Peach capital of South Carolina. The population was 12,414 at the 2010 census...
, where they were reassembled. The cargo versions would have been subject to the tax if imported as complete units, thus the disassembly and subsequent reassembly.
Ford currently imports all of its Transit Connect
Ford Transit Connect
The Ford Transit Connect is a compact panel van developed by Ford Europe and designed by Peter Horbury, introduced in 2002 to replace the older Ford Escort and Fiesta-based Courier van ranges, which had ceased production in the same year....
models as passenger vehicles by including very specific items, e.g., rear windows, rear seats and rear seatbelts. The vehicles are exported from Turkey on cargo ships owned by Wallenius Wilhelmsen Logistics (WWL)
Wallenius Wilhelmsen Logistics
Wallenius Wilhelmsen Logistics is a privately owned Norwegian/Swedish shipping company, established in 1999 and co-owned by the two shipping companies Wallenius Lines and Wilh. Wilhelmsen....
, arrive in Baltimore, and are converted back into light trucks at WWL's Vehicle Services Americas Inc. facility simply by replacing rear windows with metal panels and removing the rear seats and seatbelts. The removed parts are not shipped back to Turkey for reuse, but shredded and recycled in Ohio. The process exploits the loophole in the customs definition of a light truck: as cargo doesn't 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.
In 2009, Mahindra & Mahindra Limited
Mahindra & Mahindra Limited
Mahindra & Mahindra Limited is the flagship company of the Mahindra Group, a multinational conglomerate based in Mumbai, India. The company was set up in 1945 in Ludhiana as Mahindra & Mohammed by brothers K.C. Mahindra and J.C. Mahindra and Malik Ghulam Mohammed...
announced it will import pickup trucks from India in complete knock-down (CKD) kit form, again to circumvent the Chicken Tax. CKDs are complete vehicles that can be assembled in the U.S. from kits of parts shipped in crates.