190538 2/5/2009 9:52 09BUCHAREST70 Embassy Bucharest UNCLASSIFIED//FOR OFFICIAL USE ONLY 09STATE4753 VZCZCXRO3574 PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG DE RUEHBM #0070/01 0360952 ZNR UUUUU ZZH 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
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
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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.