… BUT RUSSIAN ATTEMPTS ARE MORE LIKELY TO SUCCEED.

A presidential decree issued on February 5 seeks to change these incentives by waiving import duties for auto firms that invest at least $250 million in production (as opposed to assembly) facilities in Russia. This was followed by the February 11 signing of a deal with Fiat, which promised to invest $850 million to upgrade the GAZ facility in Nizhny Novgorod. The government seems to believe that the rapid growth of domestic auto sales (which increased by 12 percent in 1997) combined with Russia’s large domestic automobile market, will convince other foreign producers to follow Fiat’s example. This approach met with IMF disapproval, however: Managing Director Michel Camdessus declared on February 19 that "Russian taxpayers should not subsidize Western automobile companies". (Interfax, February 19) If this policy succeeds — and statements by Prime Minister Viktor Chernomyrdin suggest that the government has no intention of backing down — it will be at the expense of the long-suffering Russian consumer.

Ukraine’s attempts at leveraging its large domestic market into favorable treatment from foreign auto producers have been rather less successful. In response to demands by Daewoo, which — alone among international auto firms — has promised to invest $1.2 billion into the AvtoZAZ production facility in Zaporizhya, the Ukrainian government on February 16 passed legislation granting Daewoo exemptions from nearly all taxes and customs duties. The European Commission responded by charging that this legislation discriminates against European auto firms (which were not offered these conditions), and therefore violates the rules of the World Trade Organization (which has not yet admitted Ukraine as a member) and the Interim Trade Agreement between the EU and Ukraine. Daewoo also pressured the Ukrainian government into banning the import of used cars older than five years. Kyiv is therefore risking a trade imbroglio with the EU, in order to hand over its domestic automobile market nearly in toto to a firm that has yet to produce a single car in Ukraine — and which, due to the financial difficulties facing the Korean chaebols, could be in serious trouble back home.

Anniversary of Stalin Deportations Observed in Chechnya and Ingushetia.