Eurasian Union Dumps Georgian-Armenian car trade
12 June, 2014
Eurasian Union Dumps Georgian-Armenian car trade
The Kremlin-initiated Eurasian Union is expected to give the Georgian-Armenian car trade a cold shoulder in favor of Russian cars. This will hit the Georgian car export and deprive the Armenian consumer of a cheaper alternative.

Although Georgia is not a car-producing country, according to the latest statistics, Georgia’s car export leads by roughly 21 percent. The secret lays in simplified customs procedures and lowered tariffs introduced with the reforms that began in 2004. Georgia has enjoyed a preferential trade
regime with neighboring countries like Armenia, Azerbaijan and Kazakhstan, which have found it cheaper to buy cars imported by Georgian car dealers [from Germany, Japan and the US].
For this reason the Georgian car re-export leaped from only 1 percent of the country’s exports in 2004 to roughly 24-25.5 percent in 2012-2013. But the upcoming Eurasian Union of Russia, Belarus and Kazakhstan and its unified customs space will likely deliver a powerful blow to this trend.
Georgia already lost the Kazakh market in 2011 when Kazakhstan joined the United Customs Union [a forerunner of the Eurasian Union] with Russia and Belarus. Kazakhstan led in the Georgian car re-export until 2009 (at around 20,000 cars). Armenia likely will be next.
On 29 May, Russia, Belarus and Kazakhstan signed a treaty to set up a common economic space which duplicates the EU model: removing customs barriers within its territory and building high barriers for import. Yerevan will join the Union tentatively in a month which means the free trade agreement between Georgia and Armenia will stumble over increased customs tariffs next year.
“The Armenian market will be lost forever after 2015,” Giorgi Glonti, sales manager at the car dealership Auto Strada Ltd, said. “Armenian traders have already stopped car orders. Not a single Armenian partner has shown up for a month and a half.”
Around 200 private and company car dealers in Georgia will see serious losses, Shalva Ogbaidze, a car market analyst, believes. “The local market is already saturated and there is no room for newcomers. Those who depend solely on the Armenian market face a serious challenge,” Ogbaidze explained.
Giorgi Tavadze, Commercial Director of Avto City, which relies on the Armenian market for 50 percent of its business, seems frustrated.
“The market has already halted and prices have dropped by 15-20 percent. The profit margin has gone from 700 USD to 100-200 USD… I now import 25 cars or less,” Tavadze said. He believes cars produced in Russia will take over the market.
Today, 70 percent of the car import in Armenia consists of Georgian re-exports, while only 5 percent are Russian exports. Once the Eurasian Union enters into effect this balance will be changed in favor of Russia. The Armenian consumer will be the obvious loser, sector pundits say.
According to Ogbaidze, Russia will try to sell brand new cars which cost much more than second-hand cars. “For example, the cheapest Russian car brand Kalina costs USD 11,000–12,000 while some second-hand Mercedes models are available at USD 2,000–3,000 in Georgia. Russian second-hand car dealers sell this same model for USD 6,000–7,000… Armenian middle class prefers to buy their cars in Georgia,” Ogbaidze said.
Once the Eurasian Union enters into effect, the Armenian middle class can forget about their cheap option. The new customs space will charge four times more for imported second-hand cars. The customs clearance of an average Mercedes that costs USD 2,000–3,000 today at the Georgian-Armenian border will reach USD 14,000.
“The purchase power of an Armenian consumer is as low as that of a Georgian, they cannot afford expensive cars and both of us will suffer,” Ogbaidze concluded.

Related story:

Possible exemptions on car import in Armenia

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