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Viewing cable 09BUCHAREST70, ROMANIA: AUTOMOBILE SUBSIDY PROGRAMS

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Reference ID Created Released Classification Origin
09BUCHAREST70 2009-02-05 09:52 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Bucharest
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 
 
SENSITIVE 
SIPDIS 
 
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 
 
BUCHAREST 00000070  002 OF 002 
 
 
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.