Ukraine seems in for yet another collision on the automobile market. While previously the state shaped this market according the standard of certain enterprises, concerned about the destiny of the domestic auto producer, now it seems to be betting on raising budget revenues from the increasing number of cars sold. Now we learn that it does not matter what kind of cars we are supplied or how they got into Ukraine. All that matters is their selling capacity, given our rickety domestic market conditions.
Some days ago, the Cabinet passed a resolution raising the age ceiling of imported cars to 8 years and canceling minimum customs duties. Before, such minimum duties amounted to at least $5,000 per vehicle and the geriatric margin did not exceed 5 years. From now on the minimum import duty will range between $2,700 and $4,500 US. The previous procedures of notifying the State Tax Service led to an increase in the number of vehicles imported using so-called temporary patterns, against the consignee’s obligation to get them back across the Ukrainian border in due time, without making payments to the budget. In 1999, a total of 99,800 vehicles were imported that way; in January-February 2000, the number dwindled to 7,772. People at the customs stations believe the Cabinet resolution will boost the influx of cars meant for permanent use in Ukraine, and that this will enhance revenues. In addition, by consistently invalidating minimum customs values placed on goods, Ukraine will meet international obligations toward the European Union and will also facilitate Ukraine’s admission to WTO.
Yevhen KOSACHOV, head of AutoZAZ-DAEWOO Joint Venture press center, told The Day that the firm’s key executives were in Kyiv on April 4, trying to find a “reasonable and [mutually] acceptable solution to the problem.” He went on to describe the Ukrainian side’s stand:
“The desire of Ukraine and our government to eventually become a member of the European community of nations is quite understandable. And it is generally known that this decision was made under pressure from EU. One has to admit that our legislation regulates these issues, of course, in a manner which is far from perfect. Nevertheless, it protects the domestic market, albeit incompletely and not the way it should. Evidence of this is the appearance of our product on the market.
“The subcommittee passing this resolution was told that [tax/customs] concessions granted AutoZAZ-DAEWOO under the law had reduced the influx of cars to Ukraine. This became one of the reasons for passing this well-known resolution. And yet this was not exactly what happened. The influx of cars to our market did not decline. 1999 saw a certain increment, however small, in the sales of new cars on the Ukrainian market, with some 80,000 sold. Simultaneously, over 300,000 were cars accessing Ukraine legally or illegally, which is only more evidence that our legislation does not protect the domestic market in any way. Before invalidating an enactment which, however imperfect, had worked, one ought to have envisaged other acts that would, on the one hand, comply with the EU requirements and, on the other hand, leave us a chance to develop our own production, without laying waste to our domestic market, futile as it was. One need not rediscover America. And a number of neighboring countries provide a vivid example. In Poland, they know nothing like “minimum customs value.” Instead, they have a well-balanced system of car import taxes, protecting Poland against excessive auto imports. As a result, in 1999, they had 640,000 new cars sold, including 200,000 made by Daewoo-affiliated joint ventures. Poland understands that what it needs is not ready products but investment in its own production facilities.
“Also, the clause reducing the imported cars’ age was one of the requirements to be observed when setting up AutoZAZ-DAEWOO. Then the clause was canceled unilaterally. In principle, this cancellation could give our investor a blank check: either give me back my $300 million worth of investment in the Ukrainian economy and let me leave, shutting the door with a loud bang, or I will sue you, claiming penalties in terms of revenues I could have had, along with moral damage (this could run into billions of dollars). So far, our investors believe a reasonable and mutually acceptable solution to the problem will be found.
“Otherwise, we and all our lawful importers will face consequences we know well: a drop in the sales. It is hard to compete with the cars being supplied from the West; they are attractive but of inferior design. In addition the EU countries build obstacles in such second-hand car imports, forcing their producers to dispose of cars over five years old. Here in Ukraine we are building a European car dump, doing so of our own free will.”
The next to comment on the Cabinet resolution, voicing car dealer’s views, was Oleksandr BUCHER, director of Kyiv’s Central City Auto Market.
The Day: How will the Cabinet resolution affect the sales of cars, considering the clause allowing imports of cars over five years of age?
O.B.: I think the seasonal market demand will remain stable. It is determined by people’s buying capacity, rather than by what kinds of cars are imported. And the number of cars sold will increase, of course, but not to any considerable degree.
The Day: And the costs?
O.B.: The same applies to the costs. They will go down, but only a little. Basically, such reduced costs will impact on budget revenues which, I think, will go up, considering the number of cars sold.
In addition, the resolution will cause an increase in the number of cars for sale. The assortment will expand, just as market supply will grow. This is certainly a positive thing for the consumer; we all know that the automobiles we can get from abroad are in a better conditions than those we have plying our own streets and highways. The trend now is that cars with Ukrainian mileage are simply resold. The number of cars supplied from abroad has declined by some 30 percent. It’s a vicious circle; we have the same cars being sold and resold. Of course, the customer doesn’t like the situation. And the costs of cars being resold in Ukraine will go down.
The Day: Do you think people will buy more new cars of domestic manufacture or will prefer second-hand cars supplied from abroad?
O.B.: There is no way to use administrative measures to make people buy a certain kind of car. As a rule, Ukrainian citizens do not have enough money to buy Daewoo models. And there is the car popularity tradition: people that can afford AutoZAZ-Daewoo machines will buy them, but there is no secondary market for these models; cars of this manufacture are not eligible as a second-hand commodity.
The Day: Does the resolution benefit the customer and will it cause the auto market to liven up in the near future?
O.B.: I think there will be a week-long lull on the market after the resolution takes effect, because both the customers and dealers will bide their time. I mean customers as people who want to buy new cars, for they will want to see the resolution’s effect on the assortment. But even now I am sure that the resolution will benefit the secondary market, as it will the customers there; people with enough money will be able to buy foreign cars, models that are better equipped for and less damaged by use under our road conditions.
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A customer well acquainted with the Cabinet resolution (one of the few) told The Day that it was all the same to him whatever resolutions were passed. All he cared about was having a right to take his pick. In this sense, he certainly approved of the new enactment, saying that if it could expand the assortment, great! And the age of the car should not worry anyone except the buyer. If you want to buy a ten-year-old car, why should anyone stop you? After all, democracy also means free choice, meaning that one should be free to buy whatever car one likes.
