Russia Imposes New Rules for Foreign Vehicle Assembly

Russian Development Minister Elvira Nabiullina has agreed with her counterpart from the Industry and Trade Ministry on new rules for foreign vehicle assembly in Russia. Under the revised rules, foreign automakers manufacturing over 300,000 vehicles per year in the country will be exempt from paying import taxes on auto components for a period of eight years.

The current Russian laws state that foreign automakers enjoy discounted rates of no more than 5%, compared to the standard rate of 5% to 15% domestic manufacturers pay. There’s also a catch in the new regulations, as the 30 percent of cars made in the country under foreign badges should be equipped with engines made in Russia, according to Nabiullina.

To this end, Alexei Rakhmanov, head of the Industry and Trade Ministry’s Auto Industry Department, said the government could annul some auto assembly agreements with auto producers that are not being implemented. He also mentioned one such manufacturer, Ukrainian automaker Bogdan, that assembles buses in the Nizhny Novgorod Region.

He has also been announced that the Russian government plans to keep import taxes on automobiles unchanged until 2014–2015. Foreign companies find it profitable to import parts and assemble automobiles in Russia, using a cheaper labor force, because customs duties on car part imports are low. The new laws might force foreign manufacturers to think up more long term plans or to leave the market altogether. Out of all the carmakers planning to open production in Russia over the next few years, only Renault, Fiat's partner Sollers, and Russian AvtoVAZ, intend to build large plants.