ARMENIA: SECOND-HAND CAR IMPORTERS WORRY THAT CUSTOMS UNION WILL BE A LEMON
EurasiaNet.org
March 14 2014
March 14, 2014 – 2:23pm, by Gayane Abrahamyan
Potential car buyers browse the estimated 7,000 vehicles available
at the Rustavi Auto Market in Georgia. Many Armenians fear joining
Russia’s Customs Union could lead to price hikes on everything from
imported foods to used cars, many of which come re-sold via Georgia.
(Photo: Molly Corso)
Armenia’s decision to join the Russian-led Customs Union was framed
by the promise of future economic bounty. But for many Armenians,
the move into that future may have to be made without wheels.
When Armenia enters the bloc, a development now expected in 2015,
higher customs duties will push up the retail cost of imported cars
by at least 50 percent, Armenian analysts predict. That not only
will place a burden on most consumers, it also is likely to inflict
damage to the economy of Armenia’s northern neighbor, Georgia. Via
its Black-Sea ports and the Rustavi bazaar for re-exported cars,
the region’s largest, Georgia accounts for 70 percent of the cars
imported into Armenia, according to Armenia’s Customs Service. In 2013,
cars from Russia accounted for only 5 percent of the 40,000 vehicles
Armenia imported.
The value of these imports can be felt in Yerevan. The duty on
Armenia’s total car imports, primarily of vehicles more than five
years old, generated $110 million (45 billion drams) in revenue for
state coffers during the first three quarters of 2013, according to
the government. With nearly one-third of Armenians living in poverty,
that is not a trifling sum.
Public discontent with the Customs Union is already on the rise
because of expectations about price hikes for food staples, most of
which are imported. Recognizing those misgivings, the government,
as part of its 262-point roadmap for joining the Customs Union, is
negotiating with Union members Russia, Kazakhstan and Belarus about
leaving Armenian duties in place on over 900 staple goods. That list,
however, does not include imported cars.
President Serzh Sargsyan has promised no “sharp price hike,” but
consumers remain jittery. Hrant Margarian, owner of the Yerevan-based
Dino taxi service, imports used cars from Japan and Germany every
few years to maintain his fleet. Relying on higher-priced official
dealerships or Russian cars “is the worst choice,” he grumbled.
Based on existing tariffs, cars imported into the Customs Union will
face duties of 25 percent – more than double the 10-percent rate
charged now by Armenia. Rates will be in euros, not rubles. The duty
on a 2004 Opel Astra, a widely popular car in Armenia, for instance,
would increase from between $350-$500 to $3,600, calculated economic
analyst Armenak Chatinian.
Given Armenian consumers’ limited disposable income, those involved
in the second-hand car business are worried about their own economic
future. “After the Customs-Union membership, when tariffs can be
doubled, I have no idea what I will do,” said Hayk Rafayelian, who
supports three teen-aged children, his parents and parents-in-law on a
“minimal income” from importing used cars from Germany. A frustrated
Tigran Hovhannissian, head of the Car Importers’ Union of Armenia,
worries that the change in duties and subsequent price increases
will destroy small businesses and leave the car-import market totally
“monopolized” and in “oligarchs’ hands.”
Owners of official car dealerships read like a Who’s Who of Armenian
politics and business. Prosperous Armenia Party leader Gagik Tsarukian
runs Multi-Motors, which sells Hyundais, Opels and Ladas, while the
exclusive rights for importing Toyotas into Armenia belong to former
President Robert Kocharian’s son, Sedrak.
Mikhayel Vardanian, son of Hrant Vardanian, the owner of mega-candy
producer Grand Candy, represents Honda, and the family of State Tax
Inspectorate Director Gagik Khachatrian deals in Mitsubishis.
Such official dealerships, already pricier than re-sellers, will
be able to bring in cars from European manufacturers’ factories in
Russia, and escape high duties. Companies that rely on re-exports of
cars to Armenia, though, will have to end their imports, Hovhannisian
said. That means trouble for Georgia; a prospect already acknowledged
by Georgian media. Re-exports account for the bulk of the country’s
trade with Armenia, a top-10 trading partner.
“Georgia will incur huge damage, as we will simply be forced to import
cars from Russia,” said economist Vahagn Khachatrian, a member of the
opposition Armenian National Congress and a former Yerevan mayor. At
the same time, he added, “we cannot afford ruining our relations with
Georgia since it is our only exit to the sea, our main transit road.
Hence, we are going to be in a difficult position.”
Hovhannisian has gathered 3,000 signatures for a letter asking the
Armenian government to reconsider adopting Customs-Union duties and
VAT on imported cars.
At a March 3 press conference, the Ministry of Economy advised
patience. Only after negotiations with the Customs Union, will the
amounts Armenia has to pay on imports be clear, officials said.
Editor’s note: Gayane Abrahamyan is a freelance reporter and editor
in Yerevan.
http://www.eurasianet.org/node/68149