MOSCOW, February 7: Foreign carmakers in Russia will be encouraged to use more domestic parts under a decree creating mini free-trade zones, first deputy prime minister Boris Nemtsov said.The move is an effort to boost the domestic automotive industry and attract foreign investment. Russia needs investment in the economically-important sector to improve the quality of its own products. Under the decree signed by president Boris Yeltsin on Thursday, foreign firms will be exempt from customs duties, which are extremely high for automobiles and parts.
Nemtsov said four car projects already in progress, worth about $1 billion each, would qualify under the decree to set up warehouses that would essentially be customs-free zones.
The law requires companies to invest at least 1.5 billion roubles ($250 million) over five years and to source half of their components domestically by the end of that period.
"With this decree we close the door to primitive kit construction," said Nemtsov, who has criticisedforeign firms building cars in Russia for using very few local parts. "First, that takes a lot less capital than $250 million."
"Secondly...the Russian share of parts must rise and that is not possible in kit production, because such cars are made abroad and then reassembled," he told a news conference. "It is clear that that will not do." Foreign carmakers moving into new markets often build plants to assemble cars from foreign parts because such ventures can be set up quickly and require little capital. Russian consumers are buying more cars as the economy rebounds and foreign producers have been negotiating a number of deals.
Nemtsov said one deal he had in mind was between Italy's Fiat and Russia's GAZ, who will sign a deal worth $850 million next week for joint production in Nizhny Novgorod. Nemtsov said that projects in Kaliningrad, Rostov and Leningrad region would also fall under the new decree. A Russian company is assembling South Korean Kia cars in Kaliningrad, and another Russian group says itis setting up a Daewoo assembly line in Rostov. Ford has said it is considering an investment of about $150 million in Leningrad region. GM and Russia's AvtoVAZ have also discussed a plant near there, though recently they have discussed switching the production site to VAZ's main Togliatti plant in the Volga region.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
