Armenia’s decision to join the Russian-led Customs Union was framed by the promise of future economic bounty. But for many Armenians, the move into that future may have to be made without wheels.
When Armenia enters the bloc, a development now expected in 2015, higher customs duties will push up the retail cost of imported cars by at least 50 percent, Armenian analysts predict. That not only will place a burden on most consumers, it also is likely to inflict damage to the economy of Armenia’s northern neighbor, Georgia. Via its Black-Sea ports and the Rustavi bazaar for re-exported cars, the region’s largest, Georgia accounts for 70 percent of the cars imported into Armenia, according to Armenia’s Customs Service. In 2013, cars from Russia accounted for only 5 percent of the 40,000 vehicles Armenia imported.
The value of these imports can be felt in Yerevan. The duty on Armenia’s total car imports, primarily of vehicles more than five years old, generated $110 million (45 billion drams) in revenue for state coffers during the first three quarters of 2013, according to the government. With nearly one-third of Armenians living in poverty, that is not a trifling sum.
Public discontent with the Customs Union is already on the rise because of expectations about price hikes for food staples, most of which are imported. Recognizing those misgivings, the government, as part of its 262-point roadmap for joining the Customs Union, is negotiating with Union members Russia, Kazakhstan and Belarus about leaving Armenian duties in place on over 900 staple goods. That list, however, does not include imported cars.
President Serzh Sargsyan has promised no “sharp price hike,” but consumers remain jittery. Hrant Margarian, owner of the Yerevan-based Dino taxi service, imports used cars from Japan and Germany every few years to maintain his fleet. Relying on higher-priced official dealerships or Russian cars “is the worst choice,” he grumbled.
Based on existing tariffs, cars imported into the Customs Union will face duties of 25 percent - more than double the 10-percent rate charged now by Armenia. Rates will be in euros, not rubles. The duty on a 2004 Opel Astra, a widely popular car in Armenia, for instance, would increase from between $350-$500 to $3,600, calculated economic analyst Armenak Chatinian.
Given Armenian consumers’ limited disposable income, those involved in the second-hand car business are worried about their own economic future. “After the Customs-Union membership, when tariffs can be doubled, I have no idea what I will do,” said Hayk Rafayelian, who supports three teen-aged children, his parents and parents-in-law on a “minimal income” from importing used cars from Germany. A frustrated Tigran Hovhannissian, head of the Car Importers’ Union of Armenia, worries that the change in duties and subsequent price increases will destroy small businesses and leave the car-import market totally “monopolized” and in “oligarchs’ hands.”
Owners of official car dealerships read like a Who’s Who of Armenian politics and business. Prosperous Armenia Party leader Gagik Tsarukian runs Multi-Motors, which sells Hyundais, Opels and Ladas, while the exclusive rights for importing Toyotas into Armenia belong to former President Robert Kocharian’s son, Sedrak.
Mikhayel Vardanian, son of Hrant Vardanian, the owner of mega-candy producer Grand Candy, represents Honda, and the family of State Tax Inspectorate Director Gagik Khachatrian deals in Mitsubishis.
Such official dealerships, already pricier than re-sellers, will be able to bring in cars from European manufacturers’ factories in Russia, and escape high duties. Companies that rely on re-exports of cars to Armenia, though, will have to end their imports, Hovhannisian said. That means trouble for Georgia; a prospect already acknowledged by Georgian media. Re-exports account for the bulk of the country’s trade with Armenia, a top-10 trading partner.
“Georgia will incur huge damage, as we will simply be forced to import cars from Russia,” said economist Vahagn Khachatrian, a member of the opposition Armenian National Congress and a former Yerevan mayor. At the same time, he added, “we cannot afford ruining our relations with Georgia since it is our only exit to the sea, our main transit road. Hence, we are going to be in a difficult position.”
Hovhannisian has gathered 3,000 signatures for a letter asking the Armenian government to reconsider adopting Customs-Union duties and VAT on imported cars.
At a March 3 press conference, the Ministry of Economy advised patience. Only after negotiations with the Customs Union, will the amounts Armenia has to pay on imports be clear, officials said.
Gayane Abrahamyan is a freelance reporter and editor in Yerevan.