General Motors Co. (GM) 2015 Chevrolet Silverado pickup trucks are displayed for sale at a dealership in Frankfort, Illinois, U.S. in this file photo.Daniel Acker/Bloomberg
A little-known tariff that has been in place for more than 50 years threatens a key segment of the auto industry if the United States abandons free-trade agreements with Canada and Mexico.
The end of free trade would mean the elimination of duty-free shipment of vehicles between Canada, the United States and Mexico and lead to the levy of a 25-per-cent duty on pickup trucks imported into the United States from the other two countries.
And it's all because of long-forgotten trade war over poultry that broke out more than a half-century ago.
The large tariff on pickup trucks and full-sized vans was imposed in late 1963 by the United States in retaliation for limits Europe placed on imports of U.S. chickens. It was, in fact, one of the earliest acts of president Lyndon Johnson and was signed into law less than two weeks after the assassination of John F. Kennedy.
The so-called "chicken tariff" disappeared on Canadian pickups when the Canada-U.S. Auto Pact came into force in 1965. The North American free-trade agreement exempted Mexico from the levy.
But the risk that the Americans will abrogate NAFTA and the Canada-U.S. free-trade agreement is growing, as President Donald Trump pursues a protectionist agenda that he hopes will reverse what he believes is a flow of manufacturing jobs out of the United States. If Mr. Trump tears up both deals, the chicken tariff would come back into play.
There are no pickup trucks assembled in Canada now, but General Motors Co. is planning to assemble such vehicles at its Oshawa, Ont., plant beginning in January.
A 25-per-cent tariff would disrupt those plans. U.S.-made pickups shipped into Canada would be slapped with a 6.1 per cent levy if both trade deals are terminated.
The tariff would be a bigger issue in Mexico, where GM and Fiat Chrysler Automobiles NV cranked out almost 700,000 pickups last year, most of them destined for the U.S. market.
The potential threat of such a tariff on some of the most popular vehicles in the United States underlines the harm and disruption the Trump administration could inflict on the U.S. economy if it sticks to demands it has made in NAFTA talks – which have been labelled extreme by analysts – and the negotiations collapse as a result.
"Supply chains will be quite seriously disrupted and there will be negative commercial consequences if we go down the NAFTA-withdrawal route," veteran Canadian trade lawyer Lawrence Herman said. "There's no doubt about that."
Mr. Herman and other trade experts pointed out that it is not clear yet whether the United States intends to pull out of NAFTA.
One source who is being briefed regularly on the talks said Canadian negotiators thought it was possible the United States would notify Canada and Mexico during the fourth round of negotiations earlier this month that it was withdrawing. Instead, the talks were extended and the length of time between negotiating rounds was increased.
Mr. Herman said he believes, however, that the negotiations will collapse and the administration will try to withdraw from NAFTA, followed by a withdrawal from the Canada-U.S. agreement.
GM's plan for Oshawa is to invest $400-million in its plant there, where final assembly such as installation of seats, engines, transmissions and other components will be done on pickup truck frames transported from Fort Wayne, Ind.
General Motors of Canada Co. president Stephen Carlisle has confirmed that pickups will be assembled in Oshawa. The market for many of the approximately 100,000 vehicles that will be assembled when production goes full tilt next year will be the United States.
Unifor president Jerry Dias said he believes GM could supply the Canadian market out of Oshawa and not export any vehicles to the U.S. market if the 25-per-cent tariff is put in place.
Auto-consulting firm AutoForecast Solutions LLC said, however, that GM's Oshawa pickup plan is to assemble just extended-cab models, not the full range of models Canadians buy, which include regular and crew-cab versions.
Canadians bought about 96,000 Chevrolet Silverado and GMC Sierra trucks in 2016.
The disruption that could be caused by the chicken tax is evident from the production numbers for Fiat Chrysler and GM in Mexico.
GM cranked out 398,661 Silverado and Sierra models in 2016. Fiat Chrysler produced 282,535 Ram full-sized pickups in Mexico.
Fiat Chrysler appears to be preparing for the worst. It's in the midst of a massive overhaul of its U.S. truck plants.
Sergio Marchionne, the company's chief executive officer, was asked during a conference call last week if those moves will enable the company to transfer production out of Mexico if changes are necessary because of the outcome of NAFTA negotiations.
"When we did the industrial realignment, it was designed to allow for the buffer in the event that happened," Mr. Marchionne replied.
GM Canada vice-president of corporate affairs David Paterson said: "We continue to encourage all the negotiating parties to remain focused on a positive modernization of NAFTA but don't find it useful to speculate on any number of potential outcomes including disruptions to deeply integrated North American automotive supply chains."
Ford Motor Co. assembles all its full-sized pickup trucks in the United States.
A U.S. appeals court ruled in 1993 that the chicken tariff did not apply to sport-utility vehicles built on truck frames.