Local Problems for Russian Ford

// Ford has lost its right to customs benefits

The first serious conflict between a foreign automaker and Russian authorities became public yesterday. Customs authorities accused the Ford concern in Vsevolozhsk, Leningrad Region, of breaking the investment agreement with the Ministry of Economic Development and Trade and rescinded its rights to the import of auto parts. As a result, Ford has been forced to stop its assembly line 1500 cars short of target. The situation is intended to be a warning to Western automakers operating in Russian that even the most minor infraction will be severely punished.

Yesterday, the Northwestern Customs Department announced that Ford-Vsevolozhsk is operating without customs benefits. Previously, the plant had the right to import components to Russia, but it did not meet the requirement to localize 40 percent of component production by 2006. The customs service has calculated the debt of the Ford Motor Co. at 400 million rubles. The customs service noted that “the company acknowledges a debt of 124 million rubles and intends to pay off the remaining debt in the coming weeks.” The customs service says that components for 300 Ford Focus cars pass through customs weekly. Now each set will cost 140,000 rubles.

Ford press secretary Ekaterina Kulinenko stated that “no information from customs about the company's debt has been received.” Furthermore, she asserts that Ford “has 40 percent of the necessary level of localization for auto production, in compliance with the Russian Government Quota No. 725-ron duty-free production of cars of May 18, 2006.” She attributed the problems with the customs services to bureaucratic misunderstandings. “To avoid delay in deliveries to customers, the company has decided to pay the customs duties. We expect to have those expenses returned under current legislation,” she continued.

The Vsevolozhsk plant manufactures 60,000 cars per year with the free customs procedure established in 1999. In return for free components import, Ford is obliged to use 40 percent local parts in 2006 and 50 percent in 2007. Ford intends to sign a new agreement with the Economics Ministry this year.

This problem has been under discussion for a long time. A Kommersant source said that the Ford contests Economics Ministry decisions on localization annually. Toyota, Nissan, General Motors and Volkswagen are opening production in Russia, and the question of localization is sensitive for all of them.

by Dmitry Belikov

All the Article in Russian as of June 20, 2006