Wednesday, June 21, 2006

Ford stripped of customs breaks

Russian authorities have for the first time become involved in a serious conflict with a foreign car manufacturer assembling its vehicles in the country. Customs officials have accused the Ford plant in Vsevolozhsk, Leningrad Region, of breaching an investment agreement, and have stripped it of tax breaks on imported car parts. This is a signal to all western auto companies starting production in Russia: even the slightest omission in the observance of the rules will be strictly penalized.

The plant, Ford Motor Company, produces 60,000 cars a year, operating under the Import to Free Customs Warehouse regime. The 1991 investment agreement stipulated that Ford was to increase domestic component production to 40% in 2006 and 50% in 2007. In August, the company is planning to sign a new agreement with the Economic Development and Trade Ministry, to obtain industrial assembly status, together with other obligations.

Sources say the company has disputes with the Russian ministry every year on how to estimate the percentage of local production, which, according to the Customs Warehouse regime, is calculated with an eye to the real costs of production. As a result, the total includes the wage bill for employees, and outlays on energy and land lease.

Toyota, Nissan, General Motors and Volkswagen have already announced their desire to build assembly units in Russia, and the issue of local manufacture is among the most contentious for them. The authorities on Monday made it clear they would not give foreign companies an easy time.

"The norms and commitments listed in agreements with foreign investors must be strictly fulfilled," the Industry and Energy Ministry said on Monday, commenting on the situation. "Any respected automotive company must honour its obligations," echoed Maxim Sokolov, chairman of the St. Petersburg committee on investments and strategic projects.

Kommersant, RIAN

Links to this post:

Create a Link

<< Home