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. Last Updated: 07/27/2016

U.S. Truck Firms Support Import Tariffs

U.S. truck and engine makers are poised to expand manufacturing and assembling operations in Russia, but they want the Russian government to promise them continuing tariff protection against imported European trucks.

In an unlikely alliance, U.S. manufacturers Cummins Engines, PACCAR and Caterpillar are working alongside Russia's huge and politically powerful truck makers, who convinced the government to introduce a 15 percent import tax on trucks from July 1.

Factories like GAZ and ZiL have seen their production fall by 70 to 80 percent this year and in part blame the incursion of imported trucks onto their market.

The tax prompted a negative response from European truck exporters and the local trucking industry, who must now pay more for their fleet.

But U.S. truck and engine manufacturers, who are showing increasing interest in investing in local Russian production facilities, are pressing the Russian government to maintain the tariffs as a shelter for future investment.

"The least we would expect is some sort of government support at the border," said Martha Brooks, director of automotive marketing at Cummins' U.K.-based subsidiary. She added that tariff protection would be a significant issue in arranging finance for further investments.

Roger Smith, deputy director of Novotruck, Caterpillar and Kenworth's first joint venture with ZiL, also said that his firm favors the tariff barriers for his firm's infant operations. "They certainly do protect us," he said.

Directors of ZiL and GAZ accompanied President Boris Yeltsin on his recent trip to Washington, underlining Russia's hopes for U.S. investment in the sector. U.S. firms already have joint production underway at Russia's two biggest truck plants.

Cummins Engines has started supplying engines to the giant KamAZ truck plant in Tartarstan for its medium and long-haul trucks.

It has also formed a loose consortium with Rockwell International and ZF for transmissions, axles and other components for KamAZ trucks.

Company executives said that Cummins is looking at financing a $300 million engine building plant at KamAZ and has been looking for financing from the European Bank for Reconstruction and Development. Caterpillar Inc. and Kenworth, a subsidiary of PACCAR, have also established a series of joint ventures with the ZiL truck plant. Caterpillar has a joint venture mounting its engines in ZiL trucks. Since May, over 150 of the hybrid trucks have been sold.

This winter, a new joint venture will start assembling Kenworth trucks in Moscow. Eventually there are plans to produce locally components, including Caterpillar engines, for use in ZiL trucks.

But both groups would like assurances of continuing Russian tariff protection to allow the joint production ventures to get established without fear of being overwhelmed by European imports.

While it is unusual for Western firms to be arguing for Russia to put up tariff barriers against imported goods, U.S. truck makers have little chance of selling direct to Russia.

European truck makers, like DAF, Mercedes Benz and Iveco, dominate the Russian market for long-haul trucks. U.S. truck makers, hit by the high cost of shipping trucks to Russia and lacking a service network in Eastern Europe, can barely compete.

The protectionist policy has annoyed both the European truck manufacturers and Russian trucking companies who need to upgrade their fleet.

Alexandr Kurlyavsky, a specialist at the Association of International Road Carriers, said that Russian truckers have an urgent need for new trucks to compete on the fast-growing Russia-Europe run. Their Soviet trucks are inefficient and under constant threat of fines in Germany, Holland and Italy where anti-pollution laws have recently been made more stringent.

Kurlyavsky said that Russia needs about 15,000 new international standard trucks a year, but at the moment, because of the high tariffs, it can only afford about 1,700 new trucks and brings in another 1,500 secondhand. "Russia needs a new truck fleet but we cannot afford it because of the tariffs," he said.

While accepting the need to protect local industry, Russian international truckers are particularly annoyed at the 15 percent import tariff because there is no longer any Russian factory that makes heavy long-haul trucks of the sort they can use.

Russia makes plenty of medium-sized trucks under 30 tons but, apart from the Minsk Automobile Factory in Belarus, no plant in the former Soviet Union makes the big, long-haul trucks over 40 tons that are increasingly replacing rail transport in Russia.

Martha Brooks of Cummins Diesel said that this may not be the case for long. At the moment, KamAZ and Cummins have plans to produce a 44-ton truck with modern components. Brooks said that market research on the product was now being completed.