Russia and Ukraine are soon set to raise the import duties on passenger cars from each respective country by 10-15%, official statements from the authorities in Moscow and Kiev suggest.
Formally, the reason behind the increase in import duties on passenger cars from Ukraine to Russia is due to the signing of the Free Trade Zone Agreement with the European Union by Ukraine. According to Russia’s prime minister Dmitry Medvedev, “after the entry into force, Russia will have to cancel trade preferences for imports of 174 different products from Ukraine, including cars.” As a result, the average import duty will be raised from 15% to 25%.
Ukrainian authorities have officially said that an investigation by the interdepartmental commission on international trade found “that the import of cars from Russia is growing because of incentives, subsidies and export support programmes, which negatively affects the domestic [Ukraine] car market.” Currently, Russian vehicles imported to Ukraine are subject to 10% customs duty, but authorities have promised to take “mirror measures” against Russia, which would see the duty also raised to 25%.
However, experts say these measures are just a desperate attempt by Russia and Ukraine to protect their domestic markets, which are falling rapidly due to the deteriorating economic situation in both countries.
"We have come to a time when the political decisions of two countries pose a serious threat to business. Mutual export restrictions will affect a number of companies, both Russian and Ukrainian, and generally disrupt the logistic flows, which ultimately will have a negative impact on existing projects in the automotive industry and the overall investment attractiveness of the industry," the head of a Russian car dealership who wished to remain anonymous commented.
According to official statistics from the Russian Federal Customs Service, ten carmakers in Russia deliver cars to Ukraine at the moment. Experts have said however that the imports and exports from Ukraine and Russia have virtually stopped in recent months. For example, in August, Renault-Nissan-AvtoVAZ reduced its sales in Ukraine to only 194 cars, a downturn of 69.9% year-on-year.
OEMs are currently refusing to comment as to how the raise in import duties could affect their sales, but noted that they are continually assessing the situation, and it is currently too premature to make conclusions.
Vladimir Bespalov, an analyst at Russian agency VTB Capital, said that the Ukrainian car industry will continue to fall, even if the increased import duties are introduced, because of economic and political instability in the country. In September, 5,788 new cars were registered, falling 10% from August (6,402 units), and falling 72% when compared to September 2013. The Association of Ukrainian Motor Vehicle Manufacturers reported that 71,011 cars were sold in Ukraine in the first eight months of 2014, showing that sales have fallen 51% year-on-year.
In Russia, new-car sales dropped by 26% in August, and 20% in September to 197,233 passenger cars and light commercial vehicles. In the first nine months of 2014, sales were down 13% to 1.78m when compared to 2013.