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By Chris Isidore, CNN Business



New York (CNN Business)For years, Ford would build its Transit Connect vans in Turkey, then ship them to the United States, where the windows and seats were immediately stripped out of many of the vehicles to convert them into cargo vans.
The reason? To pay only a 2.5% duty imposed on passenger vehicles imported from Europe rather than the 25% duty the US imposed on trucks.
But in 2013 US Customs and Border Protection changed its ruling, saying that those vehicles should have been taxed at the 25% rate all along. Ford fought the decision in court, but lost the final legal skirmish last year when the US Supreme Court declined to hear the case. And the automaker paid the back tariffs owed on those past imports.

On Thursday Ford (F) disclosed just how much more that legal loss may cost it. The company said that US Customs is considering a monetary penalty of $652 million to $1.3 billion — on top of the higher duties it has already paid.
Ford said it intends to fight the penalty, as well as additional duties of $181 million that it said US Customs is seeking for those past imports.

"The Transit Connect program was designed and executed to comply with long-standing tariff rules," Ford said in a statement about the case. "We will rightly continue to vigorously defend Ford's actions here and contest any [additional] duties and penalty. The government's argument sharply contradicted all precedents, including many of CBP's own rulings."

Ford still builds the Transit Connect vans in Europe — in Spain rather than Turkey — and ships them to the United States, where it pays the duty. One upside is that it no longer has to pay for seats and windows that are never used or the cost of converting the vans.

The reason for such a significant duty on imported trucks rather than cars goes back to the administration of President Lyndon Johnson, and a fight over a European tax on chickens imported from the United States. Johnson imposed the duties on trucks in retaliation.

For the most part, it can be argued that Ford and other US automakers weren't harmed by the duty, as they faced less competition for their own trucks. The Ford F-150 pickup has been the best-selling vehicle of any kind in the United States for more than 40 years, and pickups are among the most profitable vehicles sold by Ford, General Motors (GM) and Stellantis, the automaker formerly known as Fiat Chrysler.

The Transit Connect and the larger Transit cargo van, which is made in Kansas City, are among the most important vehicles for Ford, even if they are little known to many car buyers. Ford has become a leader in the commercial vehicle sector around the globe, and the two Transit cargo vans are key to that business.

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The way our current law works is to rely on strict interpretation of the exact words in a legal document, or at least that seams how it works to me. I don't know how they'd do it, but they really need to start off with "this is the overall goal of the law" and then have a clause about following the spirit of the law in case the written words are either unclear and open to interpretation or don't even address a certain situation. Leave it up to a jury to decide when a company has truly violated the spirit.

To me, this Ford example is a clear-cut case of violating the spirit of the law - to not import foreign trucks. They skated by with technicalities.
 

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The way our current law works is to rely on strict interpretation of the exact words in a legal document, or at least that seams how it works to me. I don't know how they'd do it, but they really need to start off with "this is the overall goal of the law" and then have a clause about following the spirit of the law in case the written words are either unclear and open to interpretation or don't even address a certain situation. Leave it up to a jury to decide when a company has truly violated the spirit.

To me, this Ford example is a clear-cut case of violating the spirit of the law - to not import foreign trucks. They skated by with technicalities.
I would say the current approach in our legal system is to word the law based on what can get through congress at the time of enacting and use the courts to interpret when in question (and those court cases then become part of how the law is interpreted/applied in the future). Is a van without seats a truck? I guess it would come down to how the law defines a truck. But the fact that Ford built the vans with seats and took them out in the US (instead of building without seats in the first place) certainly makes it look like they knew exactly what they were doing and definitely trying to get around the spirit of the law.
 

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I would say the current approach in our legal system is to word the law based on what can get through congress at the time of enacting and use the courts to interpret when in question (and those court cases then become part of how the law is interpreted/applied in the future). Is a van without seats a truck? I guess it would come down to how the law defines a truck. But the fact that Ford built the vans with seats and took them out in the US (instead of building without seats in the first place) certainly makes it look like they knew exactly what they were doing and definitely trying to get around the spirit of the law.
Yes! This one seems clear cut to me, though I'm sure Ford's lawyers (as any company will do) will bring up all sorts of reasons.
 

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I remember when I first heard about OEMs doing this I thought it sounded questionable from a legality perspective. They were obviously and openly doing this to skirt around the 25% tariff. Why would their ethic department let them get away with this? Does GM or anybody else do the same thing? Or is this only a Ford thing?
 
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Does GM or anybody else do the same thing?
Yup, in the 1970s and 1980s the Chevrolet LUV pickup truck (rebadged Isuzu Faster) was imported from Japan in chassis cab configuration, rather than as a complete vehicle. The bed of the truck was port installed in the U.S., thereby allowing GM to circumvent the 25% tariff.

Similarly, Subaru added jump seats and carpeting to the bed of its BRAT, which also allowed avoidance of the 25% light truck tariff.


 

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I remember when I first heard about OEMs doing this I thought it sounded questionable from a legality perspective. They were obviously and openly doing this to skirt around the 25% tariff. Why would their ethic department let them get away with this? Does GM or anybody else do the same thing? Or is this only a Ford thing?
I'm sure they are obeying the letter of the law, so no ethics violation.
 

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I find it funny how I've read from many on here how a market should stand on its own doesnt need protection ect ect and here we have the greatest form of protection anywhere

25% tariff on imported vehicles is huge
Well, if everyone were playing by the same rules, I'd agree on letting the market decide. But most non-US manufacturers benefit from at least tax-payer-funded healthcare for the workers (while companies spend massive amounts on health coverage for US workers), if not more overt benefits like keeping their currencies low. You could argue about what the best ways to address the differences are but you can't really have a proper functioning market when the different players are on different footings.
 

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I remember when I first heard about OEMs doing this I thought it sounded questionable from a legality perspective. They were obviously and openly doing this to skirt around the 25% tariff. Why would their ethic department let them get away with this? Does GM or anybody else do the same thing? Or is this only a Ford thing?
Ethics Department???? :oops::LOL::giggle::D:p:rolleyes:

Yup, in the 1970s and 1980s the Chevrolet LUV pickup truck (rebadged Isuzu Faster) was imported from Japan in chassis cab configuration, rather than as a complete vehicle. The bed of the truck was port installed in the U.S., thereby allowing GM to circumvent the 25% tariff.

Similarly, Subaru added jump seats and carpeting to the bed of its BRAT, which also allowed avoidance of the 25% light truck tariff.


Subaru Suicide Special, I think it was called. "Jist hang on to them handles, boys, you'll be OK no matter what!"
 
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Well, if everyone were playing by the same rules, I'd agree on letting the market decide. But most non-US manufacturers benefit from at least tax-payer-funded healthcare for the workers (while companies spend massive amounts on health coverage for US workers), if not more overt benefits like keeping their currencies low. You could argue about what the best ways to address the differences are but you can't really have a proper functioning market when the different players are on different footings.
Are they afraid that if the market was open to imports they would lose their monopoly?
 

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Are they afraid that if the market was open to imports they would lose their monopoly?
Not just the monopoly (or triopoly) but ability to be competitive at all. Given the repeated incidents of dumping by Japanese manufacturers, this might have prevented a similar fate to local manufacturing in Australia.
 

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Not just the monopoly (or triopoly) but ability to be competitive at all. Given the repeated incidents of dumping by Japanese manufacturers, this might have prevented a similar fate to local manufacturing in Australia.
So what you're saying is it's ok for the U.S to have massive tariffs to prevent competition that might give access to quality imported product but it's not ok for others to have (like China for example) massive tariffs to protect their industry

You can see how this is a massive contradiction based on what I read on this board can't you?
 

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Are they afraid that if the market was open to imports they would lose their monopoly?
It doesn't matter anymore, almost all Japanese competitor models are made in the USA.
 

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So what you're saying is it's ok for the U.S to have massive tariffs to prevent competition that might give access to quality imported product but it's not ok for others to have (like China for example) massive tariffs to protect their industry

You can see how this is a massive contradiction based on what I read on this board can't you?
For one, I don't think I've ever said China (or anyone else) shouldn't have tariffs. I think each country should make their own decisions on how to protect their own interests (or not), and others should feel free to retaliate as they see fit. I have, in the past, criticized China's forced joint ventures for market access because I think it's detrimental in the long run for everyone (China's manufacturers included).

For another, you are ignoring the 2.5% tax for passenger vehicle imports (which is much lower than, say the 10% imposed by the EU), which probably makes the US market have one of the lowest average taxes on vehicle imports (among major markets).

For yet another, I think it's fair to say the US market is more diverse and competitive than any other mature major market with a domestic auto industry. That should tell you all you need to know.
 
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For one, I don't think I've ever said China (or anyone else) shouldn't have tariffs. I think each country should make their own decisions on how to protect their own interests (or not), and others should feel free to retaliate as they see fit. I have, in the past, criticized China's forced joint ventures for market access because I think it's detrimental in the long run for everyone (China's manufacturers included).

For another, you are ignoring the 2.5% tax for passenger vehicle imports (which is much lower than, say the 10% imposed by the EU), which probably makes the US market have one of the lowest average taxes on vehicle imports (among major markets).

For yet another, I think it's fair to say the US market is more diverse and competitive than any other mature major market with a domestic auto industry. That should tell you all you need to know.
Im not singling you out in particular just saying i've read by some on this board that its not ok for massive tariffs to be imposed by other countries as that is protectionism and that the US doesnt do it

I've called that out as BS a few times and then this thread pops up confirming what I've always said

The US market "trucks" are the very definition of a closed market

It's GM's , Ford's and Ram's bread and butter and no one else's

There are competitors for these type of vehicles but they don't let them in or else they may lose that stronghold

Yeah you're right its ok for the US makers to do this

But I better not see anyone else critise any other country for protecting their market in the same way again as that would be hypocritical lol ;)
 

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So what you're saying is it's ok for the U.S to have massive tariffs to prevent competition that might give access to quality imported product but it's not ok for others to have (like China for example) massive tariffs to protect their industry
Massive tariffs are not OK anywhere for any reason, as they harm consumers and expand government power. My home country (USA) should not only repeal the 25% tariffs on light trucks and cargo vans, but unilaterally eliminate any and all tariffs on imported goods.
 

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Yup, in the 1970s and 1980s the Chevrolet LUV pickup truck (rebadged Isuzu Faster) was imported from Japan in chassis cab configuration, rather than as a complete vehicle. The bed of the truck was port installed in the U.S., thereby allowing GM to circumvent the 25% tariff.

Similarly, Subaru added jump seats and carpeting to the bed of its BRAT, which also allowed avoidance of the 25% light truck tariff.


From what I've read somewhere Subaru's all wheel drive system was originally designed for Australian market vehicles because 4WDs had a lower tariff. They could sell them cheaper with the 4WD set up than they could as 2WD and paying the extra tariff.
 
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