TRALAC - Trade Law Centre

Ford Ranger truck production could move to SA thanks to AGOA

Friday, 03 September 2010

Source: Pickup Trucks.com

Two significant events last week, plus past comments from Ford execs, reaffirmed that the curtain is being drawn on the domestic-built Ford Ranger and Ford’s small pickups in the U.S. after 2011. But one possible scenario could play out that might still see American truck buyers driving a Ranger in 2012 and beyond.

On Aug. 25, Minnesota Gov. Tim Pawlenty and St. Paul, Minn., Mayor Chris Coleman unsuccessfully lobbied Ford to keep its Twin Cities assembly plant open where the Ranger is assembled for the U.S. and Canadian markets. After several extensions, Ford Ranger production will end in Minnesota by the end of next year.

A day after Minnesota’s last-ditch efforts, Ford and Mazda announced a $350 million joint venture in Thailand to build the next-gen Ford Ranger — code named T6 — and its Mazda counterpart, the BT-50, for markets around the globe except the U.S. (and Canada) starting in mid-2011.

Ford sells two versions of the Ranger: the U.S.-built Ranger and a Thai-built Ranger that shares only its name with the North American Ranger. The Ranger T6 will be built on a single, globally shared platform that's being designed in Australia.

Ford isn’t the only one fleeing the segment at home. Chrysler has said the Dodge Dakota will end production next year, though the Dakota may be replaced by a small unibody pickup. Chevrolet Colorado and GMC Canyon production is also expected to end by 2012, leaving only Toyota, Nissan and potentially India’s Mahindra & Mahindra as the remaining players in the U.S.

The segment has steeply declined over the last decade in the U.S. because buyers have fled compact and midsize trucks as their sizes have increased along with prices to near full-size levels and the platforms have aged in favor of updates for light- and heavy-duty pickups, which have higher profit margins.

Two obstacles preventing the future overseas Ranger from showing up here are Ford’s all-new engine lineup for the 2011 F-150 half-ton pickup, which includes a new fuel-efficient Duratec 3.7-liter V-6, and the so-called “chicken tax” which imposes a pricey 25 percent import tax on pickups manufactured in most countries outside the U.S., including Thailand.

The term "chicken tax" originated in the early '60s during a trade dispute between the U.S. and Europe over U.S.-imported chickens, which were slapped with a special tax to protect West German farmers. The U.S. responded by slapping a 25 percent tariff on trucks imported from Europe.

There are countries, though, where the chicken tax doesn’t apply because of special trade agreements with the U.S., such as Australia and Mexico.

In addition to Thailand, Ford will also build the Ranger T6 at a second site in South Africa, at its Silverton factory in Pretoria. South Africa isn’t subject to the chicken tax because the country is part of the African Growth and Opportunity Act that was signed into law in 2000.

AGOA provides incentives for American companies to trade and invest with African countries that meet certain conditions, such as eliminating commerce barriers and promoting human rights. The countries can also export goods to the U.S. duty-free, including pickup trucks.

It’s possible that under AGOA, Ford could decide to import the Ranger T6 to the U.S. (with certain modifications required to meet federal emissions and safety standards) and avoid the chicken tax.

Ranger T6 production is scheduled to start in South Africa by the end of 2011, about the same time that U.S. Ranger production is winding down.

But there’s risk in such a move for Ford. Unless it’s extended by the federal government, AGOA will expire in 2015, and South Africa, along with 39 other African nations, will lose the special tax-free trade status. Ford could get caught scrambling for a third assembly line in a chicken-tax-free country if Ranger T6 sales take off in the U.S. beyond 2015.

Still, three years could be enough time for Ford to test if small-truck buyers are still serious about small trucks.