Ukrainian authorities announced this month that they will raise import duties on some foreign-made vehicles in order to spur production of domestic automobiles, a move praised by local automakers but decried by international organizations and some industry experts.
The
Governmental Courier newspaper first reported on March 14 that Ukraine’s duties
on imported cars will be hiked an additional 6.5 to 13 percent – on top of regular 10 percent import duties
– on cars with engine sizes between 1,000 and 2,200 cubic centimeters.
According
to the Ukrainian Association of Automobile Importers and Dealers, due to the
government measure, the price of imported cars with engine capacity from 1,000
to 1,500 cubic centimeters will go up by 7.8 percent, while vehicles with
engine capacity from 1,500 to 2,200 cubic centimeters will rise by 15.6
percent.
Prime
Minister Mykola Azarov told local media last week that the measure is temporary
“but necessary” for the domestic auto industry to get back on its feet. As soon
as the situation stabilizes, he said, it will be canceled.
The new
special duty is set to take effect on April 13 and will be in place for three
years.
Alexander
Paraschiy, head of research utilities and telecommunications at Ukraine-based
Concorde Capital, said the measure is aimed at protecting domestic car
producers, including Bogdan Motors, owned by Ukrainian member of parliament Petro
Poroshenko. The company assembles Russian Ladas. It also stands to help UkrAvto,
owned by ruling Party of Regions member of parliament Tariel Vasadze, which
produces several of its own ZAZ models, as well as those of Daewoo, Chevrolet
and Chery.
However,
Paraschiy said he doesn’t see any significant benefits from these protective
measures for Bogdan Motors, for whom Russia remains the key target market, not
Ukraine. Moreover, Ukraine’s demand for Ladas declined 31 percent in 2012,
according to a local trade association, while total demand for new cars
increased 15 percent, “which is more a sign of a radical shift in consumer preferences.
The import duties won’t help to change this, in our view,” he explained.
“The duties
should have a more visible effect on UkrAvto, as demand for its brands (ZAZ,
Chery, Chervrolet) declined only 10 percent year over year in 2012, and
therefore have a chance to recover on its improved pricing position,” he added.
In a
statement released on March 15, Kyiv-based investment bank Dragon Capital said
it was monitoring the import tariffs situation closely and explained that the
impending duties would be good for Ukrainian car manufacturers, at least in the
short term, noting that in 2012, domestically assembled cars accounted for 19.7
percent of total car sales, down 6.5 percent year over year and down 33 percent
since 2008.
“The news
is positive for domestic car makers, including Bogdan Motors, the third largest
Ukrainian car producer, which has suffered from growing competition from
importers in recent years,” the bank added.
But Dragon
Capital doubted the measure would have anything more than a short-term effect,
since it was enacted without prior approval from the World Trade Organization
and is likely to cause objections from other WTO members. Ukraine imposed a
similar import duty of 13 percent in early 2009 but called it back in September
of the same year after discussions with the WTO.
Lawyers have
voiced their concerns in recent weeks, saying the introduction of the car
import tariffs contradicts the regulations of the WTO, while head of the
Ukrautoprom Association, Mykhailo Reznik, warned that Ukraine’s decision would
cause alarm within international organizations.
At least
one industry expert believes the WTO will not contest the measure. Commenting
on the looming duties, former head of General Motors Europe Nick Reilly said at
a roundtable last week that it is unlikely that the WTO and European Union, in
connection with the introduction of the special duties on foreign automobile
imports by Ukraine, will introduce sanctions.
“Measures
to support national production, which had suffered, are foreseen in the WTO
regulations, so I don’t expect that any sanctions will be introduced,” said the
former GM Europe head.
But the European
Union Delegation to Ukraine called on the country’s authorities to reconsider,
saying their decision “creates a new trade barrier in a very sensitive sector
and will be extremely damaging to EU car exports. We call on Ukraine to
reconsider and withdraw this measure.”
It said it
had “asked Ukraine for a clear factual justification” but is yet to receive a
response.
Ukraine’s
First Deputy Prime Minister Serhiy Arbuzov defended the tariff hikes at a
recent press conference, telling reporters it “is normal practice when the
state protects its producers.”
Members of
parliament, foreign auto dealers and consumers are among those who’ve decried
the looming import tariffs, saying it will hurt car businesses and hit buyers
in the wallet.
Member of
the Party of Regions’ parliamentary faction and vice president of the
Automobile Federation of Ukraine Viktor Yanukovych Jr., the youngest son of the
country’s president, said in a statement posted to his Facebook page on March
14 that he was “categorically against the introduction of a surcharge on car
imports to Ukraine.”
He warned
that the tariffs could force many importers to leave the Ukrainian market and
that the state will lose payments to the national budget from imports of cars.
He added that Ukrainian drivers will suffer, as they won’t be able to afford
the higher-priced autos, and encouraged the authorities “first and foremost, to
protect the interests of its citizens, rather than individual companies.”
Many
Ukrainian car importers stated that prices of cars will increase and sales will
drop.
But at
least one said it isn’t afraid of the looming import tariff hikes. After all,
this is not the first time import dealers have experienced regulation changes.
“We’re not
planning on our sales slowing down, or (importing fewer cars because of the new
duties) – we’re going to be increasing our operations.” said Robert Kulewicz,
Ford Motor Company brand director for Winner Ford in Ukraine. “There will be
some uncertainty in the market at first. In the short term we’ll have a bump
(in sales) and then it will sort itself out.”
The bump
Kulewicz mentioned will be consumers rushing to pick up pre-tariff cars already
in stock at import dealerships.
Contrary to
other import dealers, Winner Ford, he said, might be poised to reap some
benefits of the duties measure, as it recently began selling imported models,
such as the Fiesta, with engines under 1 liter.
“We have
cars with .998 liter engines,” he told the Kyiv Post. “So we’ll be able to
offer those vehicles for the same prices.” Winner Ford, as well as some other
dealerships, he added, also sells models with diesel engines, which will go
unaffected by the new regulations.
Manufacturing
experts say that the introduction of additional duties cannot resolve the
existing problems of the automobile sector, but it is a step in addressing the
crisis it faces.
Some have
said Ukraine should do even more than the tariffs to bolster an automobile
industry that’s in critical condition and introduce additional measures, along
with the duties, to create a more attractive investment climate and bring
plants back up to full operating capacity.
Last year
was a grim one for Ukrainian automakers, including those mentioned above, with
just 76,281 vehicles produced in 2012, or 27.1 percent down from 2011, while
205,000 foreign cars were imported into the country during the same period.
Commenting
to journalists at a press conference last week, Bogdan Corporation President
Oleh Svynarchuk said that the company had managed to reach concrete agreements
with partners to boost production and resume operations at its Cherkasy plant
in light of the impending foreign import tariffs.
“Now we’ve
got a chance to form a new plan, and from the end of April we will start
production. Along with our traditional models – VAZ and Hyundai – we have
agreements with another producer, the name of which is not being disclosed now.
This year we plan to start assembling two new models, on which we will inform
you in several weeks,” Svynarchuk said.
He also
expressed hope that along with the introduction of the duties, other programs
meant to spur development of Ukraine’s automobile industry over the long term
will be approved.
“(The
introduction of the duties) is a signal for investors that attention is being
paid to the sector, and interest in the sector has returned. The government
paid attention to it, and this is one of the measures that will allow the
resumption of automobile production,” Svynarchuk said.
Kyiv Post staff writer Christopher J. Miller
can be reached at [email protected].
