U.S. Eases Ruling Calling for 25% Tariff on Minivans

The Bush Administration decided Thursday to scale back a government ruling that would have imposed a 25% tariff on all imported sport utility vehicles and minivans, choosing to exempt four-door models that appear to be designed to move people rather than goods.

The decision, which followed a six-week-long, high-level review, came after angry protests from Japan and European governments that the broad-scale, higher tariff would amount to an unfair trade practice.

Technically, the decision should mean that American purchasers of imported four-door, passenger minivans and sport utility vehicles will be spared higher prices. At the same time, those who buy popular two-door models such as the Suzuki Samurai would face substantial boosts.

Analysts estimate that the 25% tariff adds about $2,500 to the wholesale cost of each vehicle. Those not subject to it pay a duty of only 2.5%.

However, economists were split over what the actual price impact of the decision would be. Over the last three years, tariffs on these vehicles have been enforced irregularly, yet prices seem not to have been affected. Analysts said that with competition in the field so fierce, importers may not raise prices at all.

Domestic auto makers and some members of Congress immediately criticized the Administration’s action. Lee A. Iacocca, Chrysler Corp. chairman, issued a statement calling the ruling “unbelievable.”

European Firms Pleased

U.S. auto makers had launched a full-fledged campaign for the higher tariff, writing Treasury Secretary Nicholas F. Brady to argue that it is needed to make U.S. models more competitive at home as well as to provide added revenue for the government to help reduce the federal budget deficit.

Representatives of foreign producers welcomed the ruling. A spokesman for the European Community, which had sent a stern diplomatic protest when the Customs Service announced the higher tariff in December, said that European auto makers are “gratified.”

The Customs Service ruling for the broader tariff was to have gone into effect Jan. 1, but was suspended pending the new review.

The new decision still broadens a 25% tariff that has been in effect for imported trucks since 1963. In recent years, foreign auto makers had avoided paying it on some minivans and sport utility vehicles by declaring them to be passenger cars.

In 1988, 44% of those vehicles shipped to this country were subject to the higher duty. Under Thursday’s decision, about 66% of them would be.

This increase, by itself, is expected to bring another $83 million to the Treasury.

However, the officials conceded that the revision in the rules probably would prompt foreign auto makers to alter the mix of the minivans and sport utility vehicles they ship here--and eventually change their design as well to qualify for the lower tariffs.

Iacocca Irked

Iacocca also appeared to reflect such a view. “I can tell you that within a few years, the types of units Treasury has called trucks will drop to no more than 10% of the imports, or maybe 20,000 units,” he said. He charged it would cost “thousands” of jobs and $500 million in lost revenue--a figure that Treasury Department experts disputed.

“It’s inconceivable that Treasury would give this advantage away for nothing,” Iacocca said.

The new decision essentially places imported minivans and sport utility vehicles into one of these categories:

- Foreign-made minivans that have side windows, side doors and rear seats capable of holding two or more passengers will be classified as people-moving vehicles and will be subject to duties of 2.5%. Those models include the Mazda MPV, Mitsubishi Wagon, Nissan Van, Toyota Van and Volkswagen Vanagon. Others will be tagged as goods-moving vehicles, liable to a 25% duty.

- Imported two-door sport utility vehicles whose design essentially is the same as that of pickup trucks will be classified as goods-moving vehicles, and will be subject to a 25% tariff. They include Suzuki Samurai, Suzuki Sidekick, Nissan Pathfinder, Mitsubishi Montero, the Isuzu Trooper and the Toyota 4-Runner.

But four-door versions of many of these same models will be accepted as people-moving vehicles, and will draw only a 2.5% tariff.

The 25% tariff has had a long--and checkered--history. The United States imposed it originally in 1963 to crimp sales of the Volkswagen Transporter minibus to penalize Europeans for not buying U.S. chickens--a chapter in U.S. trade history still known as “the chicken war.”

Until two years ago, both minivans and Jeep-like vehicles all were classified as trucks, and were subject to the 25% tariff. But more recently, Japan began declaring some as cars, which fall under the 2.5% duty.

The new ruling was important because the market for minivans and sport utility vehicles is considered a ripe target by foreign producers. American firms still lead in sales of such vehicles and industry spokesmen said they do not expect to lose any because of it.

Nevertheless, both Detroit and the newly vocal import dealers’ association both lobbied heavily. And foreigners threatened to take the United States to the Geneva-based General Agreement on Tariffs and Trade if the 25% tariff were extended.

A Treasury official said Thursday that the Administration sought to consider the tariff question solely as “a legal issue” and “not as a trade-policy issue”--meaning that the ruling was based on technical considerations, such as chassis construction, and not on political grounds.