Identifier
Created
Classification
Origin
09BUCHAREST70
2009-02-05 09:52:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Bucharest
Cable title:  

ROMANIA: AUTOMOBILE SUBSIDY PROGRAMS

Tags:  ECON EFIN ETRD PREL WTO RO 
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DE RUEHBM #0070/01 0360952
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P 050952Z FEB 09
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 9169
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
UNCLAS SECTION 01 OF 02 BUCHAREST 000070 

STATE FOR EUR/CE ASCHIEBE AND EEB BNAFZIGER
STATE PLEASE PASS TO USTR RMALMROSE

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL WTO RO
SUBJECT: ROMANIA: AUTOMOBILE SUBSIDY PROGRAMS

REF: STATE 4753

Sensitive but Unclassified, please protect accordingly.

UNCLAS SECTION 01 OF 02 BUCHAREST 000070

STATE FOR EUR/CE ASCHIEBE AND EEB BNAFZIGER
STATE PLEASE PASS TO USTR RMALMROSE

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL WTO RO
SUBJECT: ROMANIA: AUTOMOBILE SUBSIDY PROGRAMS

REF: STATE 4753

Sensitive but Unclassified, please protect accordingly.


1. (U) This cable provides information about Romania in response to
reftel request regarding foreign automobile subsidy programs.


2. (SBU) Summary. The Government of Romania (GOR) has attempted to
use all of the available policy tools permitted by the European
Commission (EC) to mitigate the impact of the global economic
downturn on the domestic automotive industry, perceived as a key
driver of economic growth. The focus is on protecting production
and jobs at the Renault-owned Dacia plant in Pitesti and at the
facility's related parts suppliers. Ford has also received
government aid connected with its purchase of an automotive plant
near Craiova, which is scheduled to begin production this year. To
date GOR measures have aimed to stimulate domestic demand and
protect domestic manufacturers, but have not been linked to any
export targets or content requirements. End Summary.


3. (U) The GOR has undertaken several measures, beginning in 2005
with the institution of a car buyback program, to stimulate the
domestic car market. The policy has focused on discouraging the
import of used cars from elsewhere in the EU in favor of sales of
new, domestically-produced Dacia models. The ongoing car buyback
program attempts to put a floor under domestic demand by
guaranteeing a 3,800 RON (1,140 USD) payment from the Government for
owners of cars which are ten or more years old who agree to scrap
these vehicles and purchase a new car from a Romanian dealership.
While the program applies to any new car purchase regardless of
brand, its practical effect is to boost Dacia sales since these
models typically retail for less than imported competitors and
appeal strongly to cost-conscious buyers.


4. (SBU) The GOR took further steps to bolster the domestic market
in 2007 by substantially increasing registration taxes on imported
used vehicles. The EC overturned this measure in November 2007 as
discriminatory, in that registration taxes were unjustifiably higher
on imported used cars than either the actual environmental impact or

the residual value of already registered cars would suggest. The EC
action to lift the rule produced a 143 percent increase in the
import of second hand vehicles, while depressing the sales of new
cars by 14.1 percent, year on year, in 2008. In response, the GOR
again revised the initial registration tax in November 2008, this
time in the partial guise of a pollution control measure. As
currently implemented, this tax discriminates against imported used
cars; new cars with a high engine displacement (over 2000 cubic
centimeters (cc)); and new cars that do not meet Euro 4 emissions
control standards. Not coincidentally, the popular and inexpensive,
domestically-produced Dacia Logan, which has a 1600 cc Euro 4 motor,
is one of a limited number of cars escaping the higher tax. Despite
its ostensible environmental goals, the effect of this measure is to
discriminate against imported vehicles since all vehicles registered
elsewhere before being imported into Romania are subject to the tax.
This has triggered a new EC review.


5. (U) The car registration tax debate has garnered the most media
attention, but the GOR is also quietly engaged in distributing
various state aid subsidies to both Renault and Ford. Renault has
been a major beneficiary both of EC-approved, ad-hoc state aid as
well as aid distributed under block exemption regulations (BER).
The BER scheme allows the GOR to provide certain types and amounts
of aid without formally notifying the EC. As part of the GOR's
pre-EU accession privatization agreement with Renault, the company
received customs duty exemptions for manufacturing equipment and the
right to defer VAT payments for Dacia models sold domestically. The
GOR also provided 21 million euros in subsidies for a gearbox
manufacturing facility in Mioveni and has provided additional state
aid under "environmental" and other BER schemes to Renault. While
still under consideration, the GOR is also likely to approve state
guarantees for certain Renault investment loans.


6. (U) Even though Ford is still in the process of retooling the
Craiova manufacturing facility it purchased in 2007, it has already
received significant aid from the GOR. Despite an initial EC ruling
that a portion of the promised assistance, totaling 27 million
euros, represented illegal state aid to Ford, the EC still
ultimately approved the payment of 143 million euros in GOR funds to
Ford for facility upgrades. Ford has applied for an additional 57
million euros in training assistance which is still awaiting EC
approval. Ford has also requested, and is likely to receive, a GOR
sovereign guarantee for a loan from the Europan Investmet Ban
(EB fr u t 00 illin uros t ivst n heCrioa lnt.

7. (BU Cmmnt hu fr,th GR asdeontrte i wll
ssstth dmeti atootveinusrytoth mxiumexenalowed y heEC henely-elctd ovrnen wich tookoficein December appears inclined o continue this policy. Even after a

BUCHAREST 00000070 002 OF 002


recent round of layoffs, the industry employs well over 200,000
workers, and Romania can ill-afford larger layoffs from a
significant drop in car sales. Given the weakness of international
demand, the GOR will continue to test EC competitive boundaries
through actions to support domestic demand and to curb car imports.
End Comment.