It will make more business sense for global automakers to establish assembly plants in Russia and export cars assembled here to other countries. The Ministry of Economic Development of Russia has drafted a new production localization formula to promote it, the Rossiyskaya Gazeta reports.
Foreign Automakers Need to Meet Production Localization Requirements if they Want to Get Benefits and Tax Exemptions
Currently, expanding non-raw materials exports is one of the priority goals for Russia. The target is for non-raw materials exports to grow at 7% per year and the idea is that this can be achieved, among other things, by offering various forms of financial and non-financial aid to automakers as stipulated in the passport of the International Cooperation and Exports in Industry priority project, Deputy Head of the Analytical Center Tatiana Radchenko said. According to the passport, automotive exports from Russia are supposed to expand by a factor of 1.5 as early as 2018 (i.e. reaching USD 1.5 billion a year).
"In order to get new benefits and hold on to the benefits they already have under the industrial assembly rules, foreign automakers must meet the production localization level requirements," Ms. Radchenko told a Rossiyskaya Gazeta correspondent. "Under the existing formula, the lower the ratio of the cost of auto components and parts imported into Russia to the cost of the products manufactured from them, the higher the localization level."
However, the proposed change to the formula may have a rather controversial effect on the automakers' incentive to export, the expert believes. "The increase in the share of exports in total output may reduce the estimated localization level or force automakers to use more foreign-made components in products intended for exports. Another potential effect on automaker behavior is that they may be motivated to export cars at lower prices than what they sell them for in Russia," she explained.
Source: The Rossiyskaya Gazeta
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