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Decades-Old Tariff on Light Truck Imports Up for Debate - 2004-07-03

At a time when the Bush administration is promoting the benefits of free trade, there is a law on the books in the United States that imposes a tariff on imported small pickup trucks 10 times higher than that imposed on imported passenger cars.

The 25 percent tariff on small pickups has been around since 1963, when the late Lyndon B. Johnson was U.S. president. Mr. Johnson imposed the tariff as a retaliatory move against Germany for its treatment of American frozen chicken exports. The plan was to put a significant squeeze on Volkswagen exports to the United States.

Has the tariff been effective? Four decades later, in 2003, only about 400 small pickup trucks were imported into the U.S.,the majority of which were commercial delivery vehicles. Marianne McInerney is president of the 10,000-member American International Automobile Dealers Association (AIADA), which opposes the tax.

"For the U.S. marketplace, it has meant that the Detroit Three have had a very protected market, and for consumers it has meant limited choice and higher prices," she said.

The dealers association calls the tariff the chicken tax and notes that they want repeal of the chicken tax included in the U.S.-Thailand Free Trade Agreement, a bilateral trade pact currently being negotiated. What has this got to do with Thailand? Well, it turns out Thailand is the world's second-largest producer of light trucks.

As Ms. McInerney and her group see it, if the tariff were repealed, those Thai-produced pickups bearing familiar brands, would likely soon arrive on America's shores.

"In Thailand currently, Mitsubishi makes a compact pickup truck called the L-200 Strada. Isuzu makes a production pickup truck called the D-Max," she said. "Toyota has a facility there, as does Nissan. There are other potentials, of course. Kia has the potential to be manufacturing a truck there. They have a truck called the Mojave. And all of these trucks would be priced around the $10,000 price in the U.S. marketplace."

The president of the AIADA is quick to note that, with the current 25 percent tariff, that price is boosted to about $12,500, making it tough to compete with domestic makers.

In any good tale of frozen chickens and small pickups, there's another side to the story. Among those who would like to see the tariff made permanent are the folks who build such vehicles in the U.S., the United Auto Workers Union (UAW). A U.S. Congressman from Michigan, home of the UAW, Dale Kildee has another view of the tariff's purpose.

"The 25 percent tariff was put in place, in the first place, to balance the low wages and the low environmental standards in other countries," he said.

Congressman Kildee is convinced American jobs will be lost if the tariff is ended.

"The secret of success of the American economy has been investment," he said. "We have to encourage investors and give them some reasonable hope they'll get a return on their investment. But the other part of that coin is purchasing power. Without purchasing power wages are being deflated now. They're being deflated in the auto industry. When you reduce purchasing power, the question becomes: who is going to buy those vehicles?"

Not surprisingly, Marianne McInerney finds holes in the union defense.

"This is an argument that they used in the [19]70s and 80s," she said. "But the fact is, in the end, that competition is really good for America and good for our consumers. Competition hasn't destroyed Detroit. It hasn't destroyed its control in the market. And I believe firmly, and I believe our members do, that competition will make all automotive manufacturers, whether they are U.S.-based or international, really much more responsive to the needs of consumers."

President Lyndon B. Johnson has been gone from the scene since 1973, but his chicken tax lingers on. The Bush administration wants it to disappear. The UAW and its advocates are staunch defenders. In a national election year, the tariff's future has yet to be determined.