Dozens of logistics companies across Central Asia and the Caucasus engaged in parallel imports of finished vehicles into Russia are expected to go bankrupt in the next few months following intervention by authorities to bring the industry in order. The new rules could also hamper the import of Chinese-made vehicles to Russia.
Parallel imports refer to products that are made legally overseas but imported without the permission of the intellectual property right-holder (eg a carmaker).
From April 1 this year a joint risk management system and new utilisation fee will come into force in the Eurasia Economic Union (EEU), a Russia-led trade block of five post-Soviet countries that includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. The steps have been taken to combat what the authorities describe as ‘grey imports’ on the finished vehicle market.
In May 2022 the Russian government’s decree legalising parallel imports brought into existence a sophisticated industry for the delivery of finished vehicles from Europe, China and other destinations to the Russian market.
Parallel imports account for roughly 15% of the Russian vehicle market, according to Vyacheslav Zhigarev, president of the Russian Association of Automotive Dealerships. When direct automotive exports to Russia from western countries were restricted by sanctions following its invasion of Ukraine, and local automotive plants were shut down, parallel imports played a role in keeping the market from complete collapse.
Fees and taxes
Zhigarev said that under the new rules, vehicle imports into EEU for the purpose of resale will be subject to commercial utilisation fee and the risk management system will mean businesses have to pay taxes to the destination country.
The changes will weigh heavily on the supply chain. For example, in Kirgizstan, the VAT rate on finished vehicle imports stands at only 12%, against 20% in Russia. The reform will add a “few million roubles” to the price of an average vehicle in the country, Zhigarev estimated. One million roubles is roughly equal to $9,000.
Dzhumabek Kasymaliev, director of Silk Road Auto, told the local branch of Deutsch Welle (DW) that the new system will dramatically raise the payments for importing finished vehicles through the EEU member states. For example, it took only $3,000 in fees and taxes to import the Geely Monjaro, one of the best sellers in the Russian market over the past two years. Under the new rules, this figure will quadruple, reaching $12,000, Kasymaliev reported. In the end, importing Chinese finished vehicles through Kirgizstan and other EEU member states to Russia will not make any sense, he assumed.
Speaking during a recent session of the Kyrgyz Parliament in late February, Dastan Bekeshev, a member of the parliament, claimed that the automotive market was in panic as those engaged in the business of reselling finished vehicles to Russia are about to lose their jobs.
He explained that since the Russian government embarked on a parallel import programme to plug the gaps left by the departure of foreign carmakers, an entire industry emerged to serve the growth trade flows. Now, many operations are braced for bankruptcy.
Protecting Chinese partners
The key rationale behind the declared plans is to “level out the playfield” for the benefit of the official Chinese dealership.
“There is an impression that the goal is to protect the Chinese automakers with brands represented in Russia,” commented Dmitry Eremenko, an analyst with the Russian Autoselect company, which is engaged in parallel imports.
In 2023, China alone delivered 341,600 finished vehicles to the EEU countries except Russia. Each country saw a growth in supplies ranging between 30% and 70% compared with 2022, and an even more solid rise against 2021 figures.
In the meantime, the Chinese dealerships exported 751,400 finished vehicles worth $11.5 billion to Russia under direct contracts.
The situation meant that companies in China exporting to Russia needed to compete with their own products being imported through third countries under preferential terms.
“Such finished vehicles were sold [in Russia] through private advertisements; the difference of hundreds of thousands of roubles seemed significant to customers. Soon, only officially imported brands will be represented on our market,” Zhigarev stated.
The Russian press has reported that imports of western brands through the EEU countries will also suffer, though they will continue. As direct supplies from Europe remain barred by sanctions, the only alternative is importing finished vehicles from the Middle East, which has become tricky in recent months because of geopolitical disruption to logistics.
There may be other reasons to limit parallel imports. In 2023, several dealerships of the leading Russian automaker Avtovaz complained that the scheme hampered sales of its own vehicles on the domestic market.
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