Russia won't scrap carmaker incentives to join WTO

Associated Press
Russian Prime Minister Vladimir Putin, center, speaks during a visit to Magnitogorsk Steel Factory in Magnitogorsk, the Southern Urals, on Friday, July 15, 2011. Prime Minister Vladimir Putin says Russia won't lift its requirements for foreign car makers working in the country in exchange for membership in the World Trade Organization.(AP Photo/RIA Novosti, Alexei Nikolsky, pool)
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Russian Prime Minister Vladimir Putin, center, speaks during a visit to Magnitogorsk Steel Factory in Magnitogorsk, the Southern Urals, on Friday, July 15, 2011. Prime Minister Vladimir Putin says Russia won't lift its requirements for foreign car makers working in the country in exchange for membership in the World Trade Organization.(AP Photo/RIA Novosti, Alexei Nikolsky, pool)

MOSCOW (AP) — Russia won't lift incentives that encourage foreign carmakers to produce parts in the country in exchange for World Trade Organization membership, Prime Minister Vladimir Putin warned on Friday.

Speaking to workers at a major Russian steel plant in the Ural mountains, Putin assured them that Russia will not sacrifice the development of its car industry in exchange for WTO membership.

Foreign carmakers operating in Russia are entitled to low import duties for parts if they produce at least 300,000 cars a year and at least 60 percent of parts are produced locally.

"We're in difficult talks with the European Commission and the United States," Putin said on national television. "But our position here is unwavering. This is the red line that we will not cross because we cannot give up the interests of our producers."

Those comments were in stark contrast with the optimism expressed by President Dmitry Medvedev in June.

At a summit with the EU, Medvedev said Russia, the largest economy outside the WTO, "is sick of" 18 years of talks to join the organization and described the remaining differences as insignificant.

At that time, Medvedev and European officials voiced confidence that Russia would join the WTO before the end of the year, and U.S. officials gave similar timelines.

Scores of foreign carmakers have opened plants in Russia in the past decade, hoping to cash in on a market that is on track to become Europe's largest. Sales in Russia rose by 56 percent, to 1.2 million, in January-June, according to the Association of European Businesses in Russia. Nine out of ten best sellers were produced in Russia.

But as the foreign majors started to reap profits from the market that local producers were unable to satisfy, the government launched a campaign to couple up struggling Russian plants with foreign majors and push them to produce parts in Russia.

Most carmakers operating in Russia have signed deals with the government, committing to invest millions of dollars in exchange for low import duties. Among them are General Motors, Ford, Volkswagen, Renault-Nissan, Fiat and other global majors.

Russians generally prefer foreign brands and complaints of the poor quality of Russian cars abound, but the government has been propping up struggling and loss-making carmakers for years.

The government provided a much criticized $1 billion bailout to save troubled carmaker AvtoVAZ after requiring that the plant modernize its products. Critics say AvtoVAZ's cars still have a long way to go to be competitive with cheaper and more reliable Korean and Chinese cars.

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