Parallel car imports to Russia via Central Asia to be further restricted
(Photo: Xinhua)

From 1 April this year, a common risk management system and a new user fee will come into force in the Eurasian Economic Union (EEU), a Russia-led trade bloc of five post-Soviet countries, including Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. According to report of automotivelogistics, the measures have been taken to combat what the authorities call “grey imports” in the finished vehicle market.

The Russian government’s decree legalising parallel imports in May 2022 has given rise to a sophisticated industry supplying finished vehicles from Europe, China and other destinations to the Russian market.

Parallel imports account for about 15% of the Russian car market, according to Vyacheslav Zhigarev, president of the Russian Association of Automobile Dealers. When direct car exports from Western countries to Russia were restricted by sanctions following the invasion of Ukraine, and local car plants closed, parallel imports helped keep the market from collapsing completely.

Zhigarev said that under the new rules, vehicle imports into the EU for resale will be subject to a commercial use fee and the risk management system will mean that companies will have to pay taxes to the destination country.

The changes will have a significant impact on the supply chain. In Kyrgyzstan, for example, the VAT rate on imports of finished vehicles is only 12%, compared with 20% in Russia. The reform will add “several million roubles” to the price of an average vehicle in the country, estimates Zhigarev. One million rubles is roughly equivalent to $9,000.

Dzhumabek Kasymaliev, director of Silk Road Auto, told the local branch of Deutsche Welle that the new system will dramatically increase payments for importing finished vehicles through EU member states. For example, it cost only $3,000 in fees and taxes to import the Geely Monjaro, one of the best-selling cars on the Russian market over the past two years. Under the new rules, that figure will quadruple to $12,000, Kasymaliev said. In the end, it will not make sense to import finished Chinese cars into Russia via Kyrgyzstan and other EU member states, he suggested.

Speaking at a recent session of the Kyrgyz parliament in late February, Dastan Bekeshev, a member of parliament, claimed that the car market was in a state of panic because those involved in the business of reselling finished vehicles to Russia were about to lose their jobs.

He explained that since the Russian government embarked on a parallel import programme to fill the gaps left by the departure of foreign carmakers, an entire industry has sprung up to service the growing trade flows. Now many companies are facing bankruptcy.

 

(click to learn more about the coming event)

 

The main reason for the announced plans is to “level the playing field” in favour of official Chinese dealers.

“One gets the impression that the aim is to protect Chinese carmakers with brands represented in Russia,” said Dmitry Eremenko, an analyst at Russia’s Autoselect company, which deals with parallel imports.

In 2023, China alone supplied 341,600 finished vehicles to the EEU countries excluding Russia. Each country saw an increase in deliveries of between 30% and 70% compared to 2022, and an even bigger increase compared to 2021.

Meanwhile, Chinese dealers exported 751,400 finished vehicles worth $11.5 billion to Russia under direct contracts.

The situation meant that companies in China exporting to Russia had to compete with their own products, which were imported via third countries under preferential conditions.

“Such finished vehicles were sold [in Russia] through private advertisements; the difference of hundreds of thousands of rubles seemed significant to customers. Soon only officially imported brands will be present on our market,” Zhigarev said.

The Russian press has reported that imports of Western brands via the EEU countries will also suffer, although they will continue. With direct supplies from Europe still blocked by sanctions, the only alternative is to import finished vehicles from the Middle East, which has become difficult in recent months due to geopolitical disruptions to logistics.

There may be other reasons for restricting parallel imports. In 2023, several dealers of Russia’s leading carmaker Avtovaz complained that the system was hindering sales of their own vehicles in the domestic market.