MOSCOW -- Russia hopes to lure new major automakers by cutting import duties on components but some analysts doubt the measure would help create new jobs and revive the country's outdated car industry.
The cabinet will discuss in May whether to cut duties on components to zero from 12 percent, while leaving duty on new imported cars at 25 percent to encourage manufacturers such as Toyota to open new plants.
"Several big investors are directly linking their decisions on opening plants in Russia with the zero-percent duty," Andrei Kushnirenko of the Economy Ministry told an industry conference on Wednesday.
"These are mainly producers from Japan and Korea ... I think this decision will be approved very soon," said Kushnirenko, a top Russian trade negotiator.
Deputy Industry Minister Nikolai Sorokin told the conference Russia could encourage at least five new automakers to set up assembly plants by reducing import tariffs.
"By 2010 we could have foreign cars domestic production capacity of 600,000 cars a year compared to the current designed capacity of 400,000 cars and actual production of only slightly over 100,000 cars," he said.
Russian demand for cars is expected to rise to 2.0-2.5 million a year by 2010 from 1.76 million in 2004, spurred by fast economic growth and rising incomes, analysts estimate.
Only around 100 Russians out of 1,000 own cars compared to more than 750 in the United States and 400-600 in Europe.
Russia is the world's 13th-largest car maker with 1.2 million cars produced in 2004, compared to over 12 million in the world's largest car producing nation, the United States, and around 10 million in Japan, the world's No.2.
The top domestic producer is Avtovaz, which assembles outdated Ladas and whose production is declining as Ford, General Motors, Renault, Hyundai and BMW have started assembling cars in Russia.
Their production rose to 133,000 cars in 2004 from virtually zero in 2002 and covered 7.5 percent of domestic demand.
Imports of new foreign cars also rose to 19 percent of the market in 2004 from 6.9 percent in 2002, while used car imports decreased to 18 percent from 29 percent as Russia slapped prohibitive duties on cars over 7 years old.
Russian producers met 55 percent of demand, down from 63 percent in 2002 and 60 percent in 2003.
The head of DaimlerChrysler in Russia, Gerhard Hilgert, said his firm may open a local assembly plant if duty is cut to zero, but many of his colleagues said the cabinet's decision would bring little benefit for Russia.
"The industry must become competitive and by opening new assembly plants in Russia you are not creating value," said David Herman of General Motors, whose joint venture with AvtoVaz produces the Chevy Niva sport utility vehicle.
He said the government should require carmakers to get their components suppliers to set up operations in Russia, or face a decline of employment in the industry to 780,000 people by 2012 from the current 920,000.
Kushnirenko said the zero duty would apply only until projects become profitable and the favorable regime would be scrapped afterwards, forcing plants to look for local components production.
But the head of Russia's auto components association Mikhail Bokhin said the government idea was unrealistic and the new import tariff should be combined with measures forcing assembly plants to source components locally.
"Otherwise we are going to face a stagnating market and a decline in Russian car production," he said.
Russia has only limited time to reform the sector as from next decade it would have to cut duties on new imported cars to 15 percent from the 25 percent under a deal on its planned entry into the World Trade Organization, analysts warned.
Valery Tarakanov, general manager of Russia's biggest car importer Rolf, said the state should combine the introduction of the new duty with the creation of special economic zones, where components production would become more profitable.
"The duty cut should come together with a large package of other measures. Otherwise, components producers, which unlike assembling plants create real added value in this industry, will never come," he said.