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Customs Union May Unleash Flood of Cars

The customs union with Belarus and Kazakhstan could lead to a flood of cheap used cars onto the Russian market, threatening to crush domestic auto production.

The union’s three members are supposed to have unified duties as of Jan. 1. The changes will synchronize tariffs for all legal entities, but the unification for individuals will need to be agreed under a separate deal by July 1, 2010, when all customs points between the countries will be closed.

From January to June, Belarussian citizens may import hundreds of thousands of cars to resell in Russia after the borders are opened, Alexei Tereshchenko, strategy director at the Russian and Belarussian dealership Atlant-M, said Friday.

After New Year’s, dealers in Belarus will be in an unenviable position. Tariffs on new cars will jump to Russian levels — 30 percent of the cost, but no less than 1.45 euros ($2.15) per cubic centimeter of engine capacity — from 0.6 euros to 0.7 euros per cubic centimeter now, depending on engine size.

For individuals, the Belarussian tariffs will be several times lower than in Russia, and the older the car, the bigger the difference, Tereshchenko said. For example, clearing a luxury car that’s five years old to seven years old is almost 10 times more expensive in Russia than in Belarus. For cars that are five years old to seven years old with a 2.5-liter to 3-liter engine, the tariff in Russia is 5.8 euros per cubic centimeter, while in Belarus it is just 0.6 euros.

And running cars is already a well-developed business in Belarus, he said, adding that of the 200,000 cars imported annually, just 40 percent are imported by companies.

“Russia could get enough cars via Belarus to make Russian dealers uncompetitive for at least a year,” Tereshchenko said. New Russian-assembled foreign models such as the Toyota Camry and Volkswagen Passat, which cost about 900,000 rubles ($31,100), will be competing with two-year-old and three-year-old luxury models like the Audi A6 and Mercedes E-Class from Belarus, which now cost 1.6 million rubles ($55,300) for used vehicles in Russia.

Any midrange foreign car that is three years old to six years old imported from Belarus will be cheaper than a new Lada, he said. The only way to prevent a flood of cars is to get the government to force a simultaneous unification of the corporate and individual duties, Tereshchenko said.

“As soon as we hear about the increase in customs duties for individuals, we’ll import extra cars in the first half into Belarus, and then we’ll either sell them in Belarus, where the prices will rise because of the tariffs, or even better, in Russia,” said the director of a Belarussian company that imports cars by registering them to individuals during customs clearance. He told Vedomosti that it costs 5,400 euros to import into Russia a 10,000 euro car that’s three years old to five years old with a 2-liter engine. In Belarus, the same car would cost 800 euros at customs.

Russian dealers have not discussed the problem, said Oleg Moseyev, financial director of AvtoSpetsTsentr. “If we have an agreement on a customs union, then surely the Russian government won’t allow the import of cheap cars from Belarus,” he said.

Oleg Datskiv, head of the Autodiler.ru portal, said the danger for Russian dealers was real. AvtoVAZ would simply halt operations, he said, while the used car market would be obliterated and official dealers and importers would be put out of business.

Customs duties on used cars account for 60 percent to 80 percent of their price, which is why so few are imported, Datskiv said.

According to Federal Customs Service data, 11,500 cars less than five years old were imported in the first 10 months of the year, while just 1,000 cars older than five years were brought in. The figures are 96 percent less and 81.5 percent down, compared with the same period in 2008.

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