Russia’s prime minister Vladimir Putin said in September that Russia would further raise import tariffs on foreign produced vehicles from the current 25% duty to stimulate Russian production. Exact figures and timings were not given but carmakers and logistics providers are bracing themselves. The news puts a damper on recent improvements in the Russian market. But such a move by Moscow is not a complete surprise. It has been aggressive in redressing the imbalance between imports and local production–it also raised tariffs early in 2009, and its current incentive scheme is targeted at domestically-produced vehicles.
While these policies are unpopular abroad, and threaten Russia’s entrance to the WTO (which requires it to lower duties to 15% within seven years of joining), they appear to do what Moscow intends, as more cars are produced in Russia.
Kia Motors, which became the best-selling foreign automotive brand in Russia in July, selling more than 10,000 imported vehicles–up 105% from the same month last year–believes it can mitigate the import tariff with plans for local production “It will pose challenges,” said Kia spokesperson Michael Choo. “But we feel that we can mitigate the potential negative impacts as we plan to start production in late 2011 at Hyundai’s plant in St. Petersburg.”
According to federal data, around 680,000 vehicles were imported against 306,000 foreign cars made in Russia in 2009. But more foreign cars are expected to be locally produced this year (590,000) than imported (570,000).
But before Moscow pats itself on the back, the real question is whether local production would have increased anyway as sales of foreign cars went up. And not only does the import duty deter sales, but it could lead to retaliatory duties elsewhere, hurting export potential.
The tariffs are bad news for Russian and foreign LSPs, and could worsen a lack of logistics expertise and professionals in the country. “Russian LSPs hit by the economic crisis will most likely not be able to quickly respond to new market conditions due to their relatively poor financial condition,” said Dominik Buszta, an analyst at Frost & Sullivan. “Cross-border LSPs that closely cooperate with importers will find themselves under even higher cost pressure as importers will most likely try to transfer higher import costs onto LSPs.”