Chicken Tax Dodge Costs Ford Motor $365 Million

Ford Motor Company has agreed to pay the United States $365 million to resolve allegations that it violated the Tariff Act of 1930 by misclassifying and understating the value of hundreds of thousands of its Transit Connect vehicles.

The settlement resolves allegations that Ford devised a scheme to avoid higher duties by misclassifying cargo vans with "sham seats," evading the "Chicken Tax" on light truck imports.

From April 2009 to March 2013, Ford imported Transit Connect cargo vans from Turkey into the United States and presented them to U.S. Customs and Border Protection (CBP) with "sham rear seats and other temporary features" to make the vans appear to be passenger vehicles.

These temporary rear seats were never intended to be, and never were, used to carry passengers. Rather, the government alleged, Ford included these seats and features to avoid paying the 25% duty rate applicable to cargo vehicles.

By classifying the vans as vehicles for the transport of passengers, Ford instead paid a duty rate of just 2.5%. Ford submitted entry papers to CBP declaring these vehicles as classifiable under tariff heading 8703 as “Motor cars and other motor vehicles principally designed for the transport of persons.”

After customs clearance, each of these Transit Connect vehicles was immediately stripped of its rear seats and seat belts,  and returned to its original identity as a two-seat cargo van. 

The settlement also resolves allegations that, from April 2009 through August 2013, Ford avoided paying import duties by under-declaring to CBP the value of certain Transit Connect vehicles.

Ford also underdeclared the value of the Subject Vehicles to CBP by:

1.  erroneously calculating non-dutiable charge (NDC) deductions;
2. double counting American Goods Assembled Abroad (HTSUS 9802) components;
3. using incorrect HTSUS 9802 values;
4. using an improper exchange rate;
5. committing BEV classification errors and invalid BEV 9802 deductions; and
6.  failing to declare applicable engineering and tooling costs.

“When companies misclassify imports to avoid paying what they owe, they will be held accountable,” said Acting Associate Attorney General Benjamin C. Mizer.  "Companies that attempt to evade customs duties with sham representations and workarounds will not be rewarded.”

To combat trade fraud, including avoidance of import duties, the Justice Department created a Trade Fraud Task Force. The Task Force partners with CBP and other law enforcement agencies to ensure compliance with United States trade laws. 

“This settlement, which is one of the largest customs penalty settlements in recent history, demonstrates that U.S. Customs and Border Protection will pursue even the largest companies to ensure that all importers follow the rules; our intent is to enforce the customs laws fairly, which means that non-compliance is not an option for anyone,” said Senior Official Performing Duties of the Commissioner Troy A. Miller of CBP. 

The Chicken Tax

The Chicken Tax is a 25% tariff on imported pickup trucks, a relic of post-World War II mercantilism, when cheap American chickens drove down poultry prices abroad, causing European nations to create chicken price controls to protect their own industry.

In 1964, President Johnson imposed a retaliatory tariff on potato starch, dextrin, brandy, and light trucks. Six decades later, the only remnant of this period is the 25% truck tariff — ten times the import tax on other vehicles.

A 2011 U.S. free trade agreement with South Korea was supposed to allow light trucks made in that country to be imported to the United States duty‐​free starting in 2021, but according to the Cato Institute, "the Trump administration strong‐​armed the Koreans into postponing the tariff elimination until 2041."