UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000053

SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV RS
SUBJECT: JAPANESE CARS: FIFTEEN YEARS OF MOSCOW/FAR EAST
DISAGREEMENT

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1. Summary. The subject of imported Japanese vehicles has come
to the forefront in recent months, but it is not a new issue.
The conflict between Far East residents and Moscow over the
right-hand drive used cars dates back over fifteen years, and
has consistently been one of the few social issues that can
reliably draw protestors in the Far East. The issue comes to
the forefront every few years, with authorities framing
disapproval of Japanese imports in various ways. The residents
of the Russian Far East hold steadfastly to their conviction
that the imports are less expensive and much more reliable than
Russian-made alternatives and readily take to the streets when
Moscow makes importing autos more difficult. The following is a
brief overview of the decade-and-a-half disagreement over
imported used cars from Japan.

Legitimizing the Trade
--------------


2. The problem dates back to 1993, when the Kremlin first made
the decision to ban the import and use of right-hand drive
Japanese vehicles. The import business at that time was fairly
new, and organized crime has muscled aside most of the
legitimate dealers. The Kremlin framed the ban as a crackdown
on organized crime. When residents throughout the Russian Far
East staged protests against the ban, the federal government
reversed its decision. That was an uneasy time for Russian
President Boris Yeltsin, who was busy dealing with numerous
economic, political, and social problems. The burst of social
unrest in the Russian Far East apparently was extra trouble the
Kremlin did not want on its plate at the time.


3. By the early 2000s, the business was mostly legitimate and
organized crime had largely lost its role in importing Japanese
cars, and Moscow's efforts to ban the trade needed a new spin.
Science and Industry Minister Ilya Klebanov revisited the issue,
stressing what he called the inherent danger of right-wheeled
vehicles in right-side traffic. Primorye Duma deputies sent a
petition to President Vladimir Putin supporting constituents'
right to use the more affordable and reliable used cars from
Japan. For a second time, the Kremlin decided not to press the
issue, and the motion to ban the autos was put on hold.


4. In 2005, the federal government initiated the development of

an amended federal road safety statute which specified
configuration standards for all automobiles used in Russia. The
proposed legislation was comprehensive and dealt with many
aspects of automobile regulation, including licensing and
registration. Critics pointed out the fact that it also
mandated left-side steering wheels -- a clause that would
effectively abolish Japanese imports. Authorities also
announced an increase in import tariffs for foreign vehicles.
Again, the reaction of RFE residents was to organize a series of
protests, and the government backed down on the restrictions and
tariff increases.

Governor's Death -- Blame the Japanese Car
--------------


5. The matter resurfaced just a year later after the death of
Altai Governor Mikhail Yevdokimov in an automobile accident.
Federal authorities placed the blame on the driver of a Japanese
car, pointing out the supposed lack of safety inherent in the
import. Many observers voiced the opinion that the driver and
car were being used as a scapegoat and pointed out that the
governor's Mercedes had been traveling at 120 miles per hour.
The new group Svoboda Vybora (Freedom of Choice) organized
several protests in support of the driver and right-hand drive
automobiles.

Plans to Bolster Domestic Production
--------------


6. It was during those protests that President Putin first
announced plans to establish foreign auto assembly plants in
Russia, and attempted to drum up investor support for Lada
producer AVTOVAZ. Toyota had been to Primorye in 2003 looking
into the possibility of establishing a plant there, but
eventually cancelled the project, saying the Russian Far East's
market was too small to be profitable. Several plants were
eventually set up in Western Russia, but no foreign automobile
manufacturer took the plunge in the East. To show their support
for the Japanese autos, Far East residents organized a campaign
to collect donations for the purchase of a right-hand drive
Toyota to be presented to the President as a gift. The plan was
to drive the car from Vladivostok to Moscow as a demonstration
of its reliability, though fundraising proved insufficient for
the purchase and the idea was never implemented.

Largest Protests Yet
--------------


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7. The latest round of protests began in late 2008, when the
federal government announced its decision to increase tariffs
for imported cars five years and older by 35 percent.
Authorities insist that new increases will be in effect for only
nine months, but few residents believe they will be rolled back
in October as planned. Though the tariffs apply to all imports,
the move in fact serves as a practical ban on Japanese used
cars. Motorists and car dealers staged numerous rallies to
protest the decision, which have now been taking place for
several months. The December 21 rally turned violent and
resulted in large-scale detentions by OMON forces sent in from
Moscow. The federal government has pointed fingers at several
supposed instigators of the unrest, ranging from the CIA to the
Soros Fund and the Rotary Club. A government contact recently
confided to Poloff, however, that "no one actually believes
that."


8. In response, Prime Minister Putin announced a program aimed
at replacing demand for Japanese used cars with new cars
assembled in Russia. The program includes a federal government
loan interest subsidy to buyers of new domestically-produced
vehicles and a 2 million-ruble subsidy to Russian Railroads to
deliver such cars to the Far East. Despite the financial
incentives, RFE buyers remain largely indifferent to the
Russian-made Ladas, Fords, Chevrolets, KIAs, and Renaults. So
far only 20 Ladas -- reportedly for official use by
municipalities -- have been delivered to the Russian Far East,
and banks are hesitant to grant loans for new car purchases.
The Kremlin has also announced plans to establish assembly
plants in the Russian Far East. The immediate outcome of the
recent tariff increase and resulting drop in imports has been
that, according to local analysts, over 100,000 RFE residents
involved businesses related to dealing, transporting, and
servicing Japanese cars have lost their jobs.

Comment
--------------


9. Though Moscow has backed down in the past on its efforts to
stem the flow of Japanese imports, it is clear that the Kremlin
does not plan to negotiate on the issue now. Moscow will likely
continue its tolerance of protests in the RFE, but will not back
down. The project of assembling trucks, vans, and buses in
Primorye has met with little enthusiasm with locals, and
Russian-made cars -- even Western brands -- have a bad image
regarding quality. If the government does decide to ease up on
its fight against Japanese cars, it will likely save face by
allowing the tariffs to expire in October, but not sooner.
MMILLER