Wednesday, September 07, 2011

The Chicken War, and the Chicken Tax, and what they have to do with trucks made in Europe and Asia

The Chicken tax was a 25% tax on potato starch, dextrin, brandy, and light trucks imposed in 1963 by the United States under President Lyndon B. Johnson as a response to tariffs placed by France and West Germany on importation of U.S. chicken.

Largely because of post-World War II intensive chicken farming and accompanying price reductions, chicken, once internationally synonymous with luxury, became a staple food 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 approval, had treated chicken feed with antimony, arsenic compounds, or estrogen hormones to stimulate growth.

The period from 1961–1964 of tensions and negotiations surrounding the issue, which took place at the height of Cold War 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 study called the tariff "a policy in search of a rationale."

As an unintended consequence, several importers of light trucks have circumvented the tariff via loopholes—including Ford (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.

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