The European Union said Friday Ukraine is jeopardizing its partnership accord with the EU by effectively banning imports of European cars. EU spokeswoman Loesewies van der Laan said the EU 'will start formal consultations with Ukraine on discriminatory practices related to the car market.'
The EU has long had a problem with the excessive tax breaks Ukraine has granted Daewoo, the Korean car maker. What has aggravated matters, Van der Laan said, was last week's decision to slap a $5,000 duty on imports of second-hand cars and to ban such imports altogether if the car is older than five years.
'We have reached the limit. The market has been completely closed off' because of 'discriminatory' tax breaks benefiting Daewoo, she said.
She cited 'exemptions from all import duties, value-added taxes as well as reducing the profit tax base' for Daewoo. Van der Laan said the EU has raised the issue of unfair tax breaks at least eight times since last summer but Ukraine officials have never replied.
The country's tax policies 'run contrary to the general objective of EU assistance.' She added it 'sends a very negative message to other potential investors' and that Ukraine already enjoys a very low level of foreign investments – a total of $2 billion since it became independent.
The Ukrainian government last week ordered severe restrictions on imports of used cars effective April 1, citing ecological damage and safety risks. The measure is aimed at the lone domestic car maker, the AvtoZAZ factory in Zaporizhya, 400 kilometers southeast of Kyiv, which plans to produce Tavria cars in a joint venture with Daewoo.
The Korean company agreed in September to produce cars with the idling Ukrainian giant, but finalization of the joint venture's founding charter has been delayed several times in recent months.
Daewoo is to pump $1.3 billion over the next 6 years into AvtoZAZ to increase production capacity and build a sales and service network in Ukraine.
The joint venture is expected expected to manufacture 250,000 to 300,000 cars each year.
Western analysts expressed skepticism last week about Daewoo's ability to raise the money it has promised to invest in Ukraine given the financial crisis gripping Asia. Daewoo executives have discounted such concerns. The president of Daewoo Motor Ukraine said Thursday the deal could be finalized within a month.
'In my personal opinion in a month we can sign the founding documents – maybe,' Lee Pil Cho said at a news briefing. Lee Pil Cho said Daewoo would have to change its initial plans to produce 30,000 Daewoo and 14,000 new-model Tavria cars this year due to delays in completing the agreement. 'We will make another plan of production,' he said.
