Should only one remain?

A unpleasant surprise awaits domestic motorists. A draft law "On the Development of the Ukrainian Automobile Industry" has been submitted for consideration to the Ukrainian parliament. If adopted in its current form, the consequences of the "development" of the domestic auto industry will be that the internal market will be reliably closed both to foreign cars and to the overwhelming majority of Ukrainian automakers.

To be more precise, according to the draft law, the latter will simply disappear as a class. The fact is that the document with the pathetic title de facto proposes nothing more and nothing less than to conduct re-registration of enterprises producing automobiles (there are about 13 of them in Ukraine today) with state bodies and, in the event that they do not meet the proposed criteria, to strip them of the right to engage in the production of this range of products. The main criterion for elimination is the presence in the plant's production portfolio of an automobile model whose country of origin is Ukraine. Under these conditions, only four of our traditional automakers have a chance to survive: ZAZ, LAZ, LuAZ and KrAZ. However, if we speak about the benefits provided by the draft law, only the first two enterprises from the listed "foursome" will receive the right to them. Considering that the Lviv Bus Plant is fighting for its physical survival with varying success, it clearly has no time today for lobbying draft laws in parliamentary corridors. Therefore, let us not be afraid to assume that the draft law "On the Development of the Ukrainian Automobile Industry" is being pushed through in the interests of the investors of the Zaporizhzhia Automobile Plant.

Let us recall that the previous investor of ZAZ - the South Korean corporation Daewoo - the Ukrainian automobile market should be "grateful" for the adoption in 1998 of the law "On Stimulating the Production of Automobiles in Ukraine." Then, at the insistent request of the slant-eyed investors, in addition to the benefits proper for the joint venture created by Daewoo and the Zaporizhzhia Automobile Plant (the latter was exempted from customs duties, VAT on automobile sales, taxation of reinvested profit, etc.), Ukraine also banned the import of automobiles older than 5 years. However, these benefits did not bring much happiness to the Koreans. Over the course of 4 years (from 1998 to 2001), the production volumes of the AvtoZAZ-Daewoo joint venture fluctuated between 6 and 15 thousand automobiles per year. And this despite the fact that the annual capacity of the Zaporizhzhia Automobile Plant is about 150 thousand vehicles. In a word, the unprecedented tax benefits for the joint venture, coupled with the closure of Ukraine's internal market in its interests, did not produce the expected effect.

The apotheosis of this story was the beginning in 1999 of the bankruptcy process of the respected investor under whose promises all conceivable and inconceivable concessions were made - Daewoo. It is appropriate to recall here that the South Korean corporation promised to invest 1.3 billion dollars in the Ukrainian economy and to bring the production volume at the Zaporizhzhia enterprise to 230 thousand automobiles of five models by 2008. In the end, Daewoo invested 160 million dollars (also not a small sum, however, it is clearly not worth completely closing the Ukrainian auto market to other producers for its sake). The intermediate achievements in the area of production have already been mentioned above.

Today, as 5 years ago, the new investors of the "flagship of Ukrainian automobile manufacturing" are striving to create special working conditions for themselves on the market, naturally, both at the expense of other market participants and at the expense of the budget. The latter will fall short of taxes both from Ukrainian automobile manufacturing enterprises, which will be forced to curtail their business, and as a result of reduced volumes of auto imports. ZAZ will also not pay all its taxes, as it, taking advantage of old tax benefits (that is, those provided by the law "On Stimulating the Production of Automobiles in Ukraine"), will add to them new ones provided by the draft law "On the Development of the Ukrainian Automobile Industry."

But what is even more dangerous is that a monopoly of one producer will be created in Ukraine and a bold cross will be put on the development of all the others - first of all, auto assembly productions, which have already made their first steps in business. For decades, our automobile industry was separated from the rest of the world by an "iron curtain" of technological backwardness. And the only correct step in this situation is the start of production in Ukraine of licensed models in partnership with leading world concerns. It is appropriate here to recall the experience of those same Koreans. Large-scale development of the auto industry in South Korea began only twenty-five years ago. During this time, one of the poorest countries in Asia turned into a world automobile power. Today it occupies fifth place in the world in automobile production. The development of South Korea's automobile manufacturing was facilitated by the government's outright protectionism. After the authorities decided that Korea would become an automobile exporter, a high prohibitive tariff was introduced, which made the import of foreign cars into the country practically impossible. Moreover, in 1975 the import of components was also restricted: in order to obtain permission, the importer was required first to prove that analogous parts could not be produced in Korea. As a result, by 1980, more than 90% of the parts in Korean cars were of domestic production; only certain technologically complex components were imported from abroad.

However, the transition to localization of component production did not mean the automatic start of independent research and development work. Until the end of the 1980s, Korean cars were mainly licensed copies. From 1962 to 1995, Korean automakers concluded 488 licensing agreements. In more than half of the cases, the technology suppliers were Japanese companies (57.3% of agreements), followed by firms from the USA (15.8%), Great Britain (9.9%) and West Germany (8.8%). The foreign partners were different - almost all the largest automobile firms in the world cooperated with the Koreans at one stage or another. The accumulated experience allowed South Korean enterprises only at the end of the 1990s to begin producing models of their own design, which today constitute serious competition for automakers of America, Europe and Japan.

Russia is today following an analogous path, where over the last five years 6 large enterprises for the assembly of foreign cars have opened. Moreover, four of them - with the participation of Russian capital - started from scratch. It seems that the Russians have understood: at the current stage of development of the national auto industry, there is no point in "reinventing the wheel." It is appropriate to note that the main difference between the Korean-Russian model and the one imposed by the authors of the draft law "On the Development of the Ukrainian Automobile Industry" is, in addition to the rather aggressive protection of the internal market from automobile imports (which is characteristic, by the way, of both South Korea and Russia), also, for some reason, the preservation on this very market of only one single national producer. That is, the Ukrainian model ultimately looks far more "promising" both for consumers, who will be forced to choose, to put it mildly, from a limited assortment of automobiles affordable to them, and for the budget, which will lose even the current small revenues from the Ukrainian auto industry.