* Russia slaps fee on imported cars only
* Moscow scrapyard stands almost idle
* Levy slammed as "blatantly discriminatory"
* Trade tensions between EU and WTO newcomer Russia
By Sonia Elks
MOSCOW, Feb 13 A giant mechanical claw reaches
down, grabs a small brown car and swings it into the maw of a
huge shredder. Within minutes, the Soviet-era Moskvich saloon is
spat out as a pile of twisted metal.
Scrap dealer Yuri Vorontsov hopes business at his Vtormet
yard outside Moscow will pick up soon thanks to a new recycling
fee on car imports. But he is still waiting to hear how the levy
will help him compete with fly-by-night operators who buy up
cars, strip them for parts and dump the hulks illegally.
As it is the plant, which can process up to 10,000 cars per
month, is lucky to chew through 40.
"You can sell your car in any condition - if you look on the
Internet it says 'we will buy any car, working or broken'. So
what is going to happen; is it going to be properly scrapped?"
asked Vorontsov. "No way."
Russia's trading partners say the new levy is a purely
protectionist play under the guise of environmental "recycling".
The European Union Trade Commissioner, Karel de Gucht, has
threatened to invoke the disputes procedure of the World Trade
Organisation, which Russia joined only in August.
Fredrik Erixon, a director at the European Centre for
International Political Economy thinktank in Brussels, called
the import fee "blatantly discriminatory" and said Russia was
running "highly protectionist" policies.
"Russia is going to find itself being sued by a lot of
different countries on a lot of issues," Erixon told Reuters.
It was a disagreement over Russia's automobile market that
almost scuttled its marathon talks on joining the WTO, when
President Vladimir Putin in late 2010 granted subsidies to
encourage 'localisation' of auto production.
The dispute was resolved after Moscow signed up to a series
of tariff cuts, lowering import duties on cars from 30 percent
to 25 percent from September 2012, on the way to a final rate of
15 percent by 2016.
The new charge effectively takes import charges back up to
Moscow has shown no sign of changing behaviour deeply rooted
in an autarkic Soviet-era mindset, its critics say. Tensions
with the United States have escalated over a Russian ban imposed
this week on meat products containing the additive ractopamine.
MOUNTING CAR PROBLEM
Russian car sales reached 2.9 million units last year, worth
$77 billion, and the country is on course to overtake Germany as
Europe's biggest auto market in a few years. More new cars will
mean - eventually - more cast-offs.
Moscow's central streets are jammed with premium models like
the Mercedes favoured by top apparatchiks, but Russians
typically still keep their cars on the road for far longer than
A third of the 35 million cars on the road in Russia were at
least 15 years old as recently as 2011, market researcher
AutoStat has estimated.
Annual scrappage rates run at 1-3 percent - less than half
the 6 percent average in Europe, according to data from
Vorontsov's yard scrapped 12,000 cars in 2010 under a
state-sponsored 'cash for clunkers' scheme created to fight
recession, where car owners got a voucher towards a new car when
they scrapped the old. But that scheme expired last year.
Now, when Russians do get rid of their cars, they have no
incentive to go to regulated yards because of the red tape and
extra cost involved, said Stanley Root, automotive industry
leader at PwC in Moscow.
Scrapping is "becoming an urgent question", says Root, both
to support the car industry's growth and to deal with the
expected increase in unwanted old cars as rising incomes
encourage middle-class Russians to trade up at a faster rate.
"If you want to secure the long-term sustainable growth of
the car industry here, it is high time that attention was
focused on implementing a scrap system," Root told Reuters.
WORDS BUT NO ACTION
The Russian government says the fee on imported cars, which
ranges from 430 euros for a small car to 150,000 euros
($200,000) on a heavy construction vehicle, is one of the
measures it is taking to address the issue.
But while the Trade and Industry Ministry has said the money
will be used to set up state-sponsored car scrapping
infrastructure, it has not given details of when and how this
will be done. Cars manufactured in Russia will not be hit with
the fee as long as producers set up drop-off points at their own
expense to collect old vehicles for recycling.
Homegrown firms such as AvtoVaz, the maker of the
iconic Lada that is now majority owned by a Renault Nissan
joint venture, stand to benefit the most.
Importers will have to pay up-front fees worth around 5
percent of a car's sticker price.
"This levy is offsetting, clearly, the reduction of customs
tariffs which has started since the accession to the WTO," said
Frank Schauff, head of lobby group the Association of European
Businesses (AEB) in Russia, which backs the development of a
regulated, but not state-controlled, scrappage industry.
Foreign car makers say it is Russian consumers who will
ultimately bear the cost.
"Across the entire industry the end consumer will suffer
from this policy," said John Steck, president of Volvo Car
Russia, which imports every car it sells in Russia.
Denis Manturov, the minister of trade and industry, said in
a speech last month that the government would not drop the fee.
He added: "We are ready to consider the possibility of creating
conditions for establishing recycling centers for foreign
producers, but it will certainly take time."
Scrap dealer Vorontsov, a stocky man in his 50s with a
matching white crew cut and stubble, is eager to see the dispute
resolved one way or the other.
"The faster clarity comes, the faster it will become clear
how an auto recycling system will work in Russia," he said.