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Ford Settles US Import Tariff Evasion Case for $365 Million

Published March 14, 2024
2 months ago

In a significant development concerning international trade and automotive industry compliance, Ford Motor Company has agreed to pay $365 million to settle allegations by the United States government that it circumvented federal tariff laws. Between April 2009 and March 2013, Ford was accused of understating the value and misclassifying hundreds of thousands of Transit Connect vehicles imported from Turkey to reduce import duties.

The U.S. Justice Department described the agreement as one of the largest customs penalty settlements in history. It disclosed that Ford had allegedly devised a strategy to avoid higher duties by manipulating the classification of the vehicles they were importing. There is a stark difference in duty rates between passenger vehicles, which attract a 2.5% tariff, and cargo vehicles subjected to a substantial 25% duty.

This controversy centers on the "chicken tax," a relic of a 1960s trade dispute initially affecting frozen chicken, which now results in higher tariffs on light trucks and cargo vans. According to government officials, Ford imported Transit Connects as passenger wagons outfitted temporarily with features like sham rear seats to qualify for the lower passenger vehicle duty rates. These vehicles, once cleared through customs, had these provisional modifications removed to revert them to their actual form as cargo vans, thus evading the 25% cargo vehicle duty.

The case has been a complex matter that Ford has decided to settle "once and for all," despite challenging several characterizations made by the Justice Department in its statement and denying any liability. The auto manufacturer expressed a desire to move ahead from the decade-old dispute, implying a strategic decision to close the chapter at a considerable financial cost. Its choice to settle the case follows the Supreme Court's decision not to hear Ford's appeal in 2020 after being warned they could face up to $1.3 billion in penalties.

This settlement serves as a poignant reminder to all multinational companies of the significance of adhering to international trade laws and regulations. Brian Boynton, head of the DOJ's Civil Division, stated emphatically that the government would not tolerate attempts to dodge duties through deceptive practices.

Following the announcement of the settlement, Ford’s shares experienced a slight downturn. Despite this, the market reaction seems muted, which might reflect investor relief that the company has managed to avoid the potentially larger $1.3 billion penalty it once faced.

As Ford looks to resolve this chapter and focus on its global operations without the overhang of this legal dispute, the importance of rigorous compliance with customs regulations remains a priority for international trade participants.

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