WASHINGTON -- The government ruled yesterday that Honda avoided an estimated $16.5 million in U.S. tariffs it should have paid on Canadian-built Civics sold in the United States.
The U.S. Customs Service said that the Civics -- assembled by the Japanese automaker in Alliston, Ontario, and sold in the United States -- did not have enough North American content to be exempt from U.S. tariffs in 1989 and 1990.
The reason, the agency said, is that an aluminum engine Honda builds in Ohio and installs in Canadian-made Civics is more than half foreign in content and value. Under the U.S.-Canada free trade treaty, only those vehicles with more than half of their value in U.S.-made or Canadian parts are exempt from the 2.5 percent U.S. import duty.
The Customs decision is not expected to have any immediate impact on Civic prices here or on employment levels at Honda's U.S. plants.
The ruling contradicts Canadian government decisions favoring Honda on similar issues.
U.S. and Canadian officials say their differing rulings were based on legitimate interpretations of the free trade treaty. But yesterday's ruling spurred Canada to request formal talks aimed at resolving the tariff issue.
The Customs ruling applies to about 90,000 Civics made in Ontario in 1989 and 1990, the period covered by a Customs Service inspection. Honda will be billed for the back duties but is permitted to appeal any final U.S. ruling to the courts.
"For the 2,000 Americans who work at the engine plant, this is a baffling result," said Al Kinzer, manager of Honda's engine plant in Anna, Ohio. "We know these are American engines. We make them in Ohio from aluminum ingot and molten iron."
Honda argues that it should be allowed to count U.S.-Canadian parts or labor at several points in a car's production process -- a practice known as "roll-up." Under Honda's interpretation of roll-up, a car part with 51 percent American value can be counted as 100 percent North American when it crosses the border into Canada.
Scott Whitlock, executive vice president for Honda of America Manufacturing, said the U.S. decision was influenced by anti-Japan sentiment. Democrats have been pressuring President Bush to get tougher on what they see as unfair Japanese business practices in the United States.
But the ruling was praised by those who say some Japanese companies trade unfairly in the United States. Sen. Donald W. Riegle Jr., D-Mich., said the ruling shows that the Bush administration "has finally taken the necessary first steps to stop the trade cheating by Honda here in North America."