The Russian government established the procedure for collection of a vehicles recycling tax, which does not provide for any exceptions for vehicles produced in Ukraine.

The document will come into effect on September 1. In particular, head of the Russian government Dmitri Medvedev approved the rules of collection, calculation and payment of vehicles recycling tax on wheeled vehicles, as well as the return of the amounts paid.

The document separately provides for the conditions, under which the tax shall not be paid on the wheeled vehicles, which are imported to the Russian Federation from the Customs Union member states and have the status of the Customs Union goods.

The introduction of the 30 % utilization fee for cars by Russian Federation will not contribute to the development of the Ukrainian-Russian relations, Prime Minister of Ukraine Mykola Azarov commented on the decree. He added that Ukraine might introduce similar restrictions in return.

"If we also introduce a vehicles recycling tax on Russian cars, coming to our market, they will cost one thousand dollars more expensive, and the Ukrainians will not buy them," Azarov said.

According to the PM, with the introduction of Russian vehicles recycling tax since September 1, the Ukrainian passenger cars will rise in price by 600-1000 dollars, and trucks - by 20 thousand dollars approximately in the Russian market.

At the same time, Ukraine's government still hopes to reach privileged agreements with Moscow to avoid paying newly introduced tax. ForUm has asked experts and MPs about the current situation with the tax and possible development of events:

Oleh Omelnitski, director of "AUTO-Consulting" company:

- Both sides will suffer significant financial losses because of this situation. The recycling tax will add 10-15% to the cost of domestic cars, which will affect their competitiveness in Russia. Not all producers can meet this challenge, and within the time, they will start losing customers. It may cost Ukraine $340-350 million of losses, and it concerns 90% of the total export of vehicles, for which Russia is the main market outlet.

Ukrainian car plants supply to Russia low-cost cars, thus consumers will immediately react to the price raise. In 2011, in total we exported 40190 vehicle units to the Russian market, costing $344 million - passenger cars of ZAZ: Chance, Sens, Chery Bonus (ZAZ Forza), Bogdan-2110, -2111, -2310, trucks KrAZ, buses BAZ, Bogdan. In the first half of 2012 the amount of export is estimated at $142 million.

However, for Russian we are also market number 1. In 2011 Russia imported in Ukraine 47688 units costing $453 million, including passenger cars Lada, GAZs, UAZs, Hyundai Accent, Kia Rio, Volkswagen Polo Sedan, Renault Logan Sandero, trucks KamAZ, 'Ural", buses PAZ, LiAZ and others. For the six months of 2012, though, the import made $211 million. If the sides do not come to an agreement, Kyiv can introduce 'mirror' measures. The problem is that we do not know what measures yet. The draft bill on recycling tax is under development, and in its first reading it does not say anything about restriction measures against Russian car import.

The Cabinet has a decision of the interdepartmental commission on international trade, taken following the results of the special investigation into foreign cars (though it has never been published). According to preliminary information, the authorities may introduce special taxes for passenger cars with 1-1.5 l engines - 6%, and for 1.6-2.2 l - 15%. But such measure cannot be called 'mirror', as firstly, it will be applied not only on Russian vehicles, secondly, it covers only passenger cars, and thirdly, the additional tax of 6% will not affect the sales badly. Fourthly, there is a risk to get counter measures from other interested sides, like the EU, Japan, Korea, as well as Uzbekistan and Turkey. As a result, this 'weapon' will be inefficient.

Anton Shutikov, expert on car market:

- Theoretically, Russian car market can do without Ukrainian cars, but for our country, the loss of Russian market will result in the reduction of car production by 40%. It is not that easy to compensate this loss at the expense of growth of domestic sale and export to other countries.
Yes, after some time we may introduce our own law on recycling tax on imported cars, but it won't change much. Russia will lose supplies to our market in the amount of 20-25 thousand cars costing $200-230 million. Even the most severe measures will increased this number up to 30-35 thousand cars maximum.

Russia, in turn, manages to supply about 2.5 million cars in total, thus these 20-25 thousands will be easily realized on some other markets. Even for one single state company "AvtoVAZ" such loss will not be tragic. The federal producer issued 1.7 million cars in 2011, which means Russia will not even notice the counter-move of Ukraine. The Russian car industry is full of money, as foreign investors keep coming in the country to build new plants and develop new models.

The best way is to come to an agreement with Moscow and keep looking for new sales markets, starting with the EU, Turkey and going to African counties.

Vitaly Kulik, director of the Research Center on civil society problems:

If Ukraine were a member of the Customs Union, the Russia’s introduction of vehicle recycling tax on foreign would not affect it. By introducing such a tax, the Kremlin makes it clear: it is better to be in the Customs Union. If you read the text of the document, it is easy to see: the CU member states shall not pay it.

Russia and the Customs Union have the right to introduce such innovations and it will be difficult to appeal against these protective measures through the WTO and especially the FTA within the CIS. These are not the traditional measures (anti-dumping or special ones), that is to say, the additional tax. Nowadays, many countries are practicing something like this. In the West, though, the procedure is more delicate: for example, through a package of environmental requirements to the quality of imported products.

As for the response measures, they are quite possible (for the same reason). The figures, voiced by the Prime Minister of Ukraine, are rather realistic. It is not a good idea to worsen again the relations with the Russians, but on the other hand, the policy of force must meet adequate response.

Oleksandr Zholud, economist, analyst of the international center of advanced research:

- Having become a WTO member Russia tries to protect its car market with introduction of the recycling tax. As a WTO member Russia has to reduce import fees for foreign cars, thus Russian domestic cars become less competitive on the market.

In general, I believe it would be better for both countries to get rid of any restrictions. To introduce certain taxes just because some other country introduced them is not correct. Besides, Ukraine does not export large amount of cars in Russia. Our VAZs are mainly sold within the country.

Oleksiy Plotnykov, MP from the Party of Regions, Doctor of economics, professor and honored economist of Ukraine:

- If one country introduces trade restrictions, which affect interests of another state, this another state has a right for a counter-move. If we respond to the Russia's move, it will be logical and legal. However, I stand for peaceful solution. We should introduce exceptions for both Ukraine and Russia not to suffer the consequences of the tax implementation.

If we do introduce the recycling tax, it won't do any good to the Russian car industry. Russian automobiles will become less competitive comparing to foreign cars of similar class from the EU, China and other countries.

Ihor Burakovski, director of the Institute on economic research and political consultations:

- A country can introduce recycling taxes, if they are applied to all imported vehicles without exceptions. Otherwise, we speak about discrimination of certain producers and suppliers.


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