Young- suk Hyun Ph.D Hannam University Daejeon , Korea email : yshyun@hnu.kr skype : yshyun88

1. The Prospect of Auto Industry Development in KazakhstanKazakhstan Machine Builders Forum April 16 2013 Astana, Kazakhstan Young-suk Hyun Ph.D Hannam University Daejeon, Korea email : yshyun@hnu.krskype: yshyun88 mobile : +82-10-4270-1519 YSHYUN, Machine Builders Forum : 16 April 2013 Astana

2. The Prospect of Auto Industry Development in Kazakhstan I. Introduction II. Demand Forecast of Kazakhstan Auto Industry III. Auto Industry Policy Options and Lessons IV. Policy of Kazakhstan Auto Industry V. Discussions YSHYUN, Machine Builders Forum : 16 April 2013 Astana

3. I Introduction Outside CIS (China, EU) CIS (Uzbekistan, Ukr… ) CU Russia Belarus Kazakhstan YSHYUN, Machine Builders Forum : 16 April 2013 Astana

4. West and East Bound Move to Kazakhstan Russia 2.0 million prod (2011) Customs Union 2010 - Gov. Strategy 2020 for Russian Car Industry - Industrial Assembly Agreement East Bound Move China 18.4 million prod (2011) WTO 2013 (KZ) Cheap Price Largest producer & market M&A Kazakhstan 9,550 prod (2011) Risk of Nutcracker Long-term Auto Industry Dev. Plan West Bound Move YSHYUN, Machine Builders Forum : 16 April 2013 Astana

5. Strategic Path and Natural Path Value Added, Job Creation, Industrialization Large small River Natural path Strategic path Ship YSHYUN, Machine Builders Forum : 16 April 2013 Astana

6. □ Kazakhstan’s Access to the WTO Kazakhstan’s accession to the WTO will become one of the most important stages on the way to integration of the country into the global economic system. But under the Customs Union regime, Kazakhstan cannot but follow Russia’s market opening schedule in negotiation with WTO. It will lower common customs tariffs and boost import demand. □ Impact and Policy Implication Lower Tariff Lower Price of Foreign Automobile Foreign Autos get More Competitive Power Gain More Kazakhstan’s Auto Market Domestic Car Makers are difficult to survive YSHYUN, Machine Builders Forum : 16 April 2013 Astana

7. Mid Growth High Growth Company Strategy No Growth Low Growth Less Aggressive Weak Government SupportStrong II. Demand Forecast of Kazakhstan Auto Industry Assumption of Vehicle Demand Forecast in Kazakhstan Aggressive YSHYUN, Machine Builders Forum : 16 April 2013 Astana

8. Summary of KZ’s Vehicle Demand Forecast in 2020 (Units) Summary of Three Growth Scenarios in 2020 YSHYUN, Machine Builders Forum : 16 April 2013 Astana

9. III Auto Industry Policy Options and Lessons YSHYUN, Machine Builders Forum : 16 April 2013 Astana

10. YSHYUN, Machine Builders Forum : 16 April 2013 Astana

11. WTO and Gov Auto Industry Policy YSHYUN, Machine Builders Forum : 16 April 2013 Astana

12. Establish Long-term Development Plan □ Korean government has supported holistically for the automotive industry. - Government’s support is important to cross the chasm. Performance Korea Mainstream Leaf frog chasm (Death Valley) Developing countries Fall Behind Chaos (Market Opening) Time Infant Growth Mature

13. Lessons from Korea’s Experience WTO Local Brand Korea : 10th auto producing country (2.52 mil. production, export 978 thousands in 1995 when accessing WTO Government strong initiative in supply and demand policy to dev local model in 1970s by local firm Hyundai Motor 3. Before WTO Korea, Gov could implement every policies to support local model and local maker : (ref: KOICA Report to Kazakhstan Gov. Feb. 2010) 4. Hyundai Motor selected “self reliance strategy” to develop local model with high risk taking entrepreneurship. 5. Korean Gov 1) special consumption tax (purchase tax : product Tax) 2) automobile tax (operating tax) to regulate foreign car import - heavy tax for large cars (most import car) after WTO 3) Emission regulation as to regulate import of large foreign car abolished as of the FTA with USA in 2012 8. Lessons - strong gov. intervention : industry policy, local content, local model dev - without local model, hard to increase local content - but it was experience in 1970, 1980s before WTO - rapid catch up strategy under GATT

14. China after WTO (Dec 11 2001) 1) Import Quota ; 1986-2005 (20 years) even after WTO Dec 11 2001 2) Local Content Issues 1 : WTO 2001 over 60% foreign parts vehicle assembled in China (below 40 local content vehicle)  import duty (Custom tax) is same as complete vehicle 25% EU, USA proclaim to WTO as Unfair Trade 2008 China defeated but protest again to prevent simple screw drive foreign vehicle plant in China Abolish 3) Local Content Issues 2: by 2005 some parts custom duty 30% ( other parts 13-17%) 2006 to comply WTO complete vehicle 25% parts : 10% 4) Local Brand Vehicle Target (2006) 40% (2005)  60% (2010) 5) regulate foreign investment 2001-2008 limit not over 50% of foreign investment in automobile industry not parts ind. 6) Vehicle Safety Regulation (2005) : 9 regulations (back mirror, door lock, interior materials … 7) Minimum Export Ratio Policy (2006) : new auto plant must meet Min export Ratio YSHYUN, Machine Builders Forum : 16 April 2013 Astana

15. IV. Policy of Kazakhstan Auto Industry Extensive inter-industry relationships <Figure > Unit Structure of Korean Automobile Industry (2000) Auto Industry Steel Machinery Rubber & plastic Electronics Chemical Source : Input-Output Table, Bank of Korea YSHYUN, Machine Builders Forum : 16 April 2013 Astana

16. Basic Strategy in Automobile and Automotive Parts Industry YSHYUN, Machine Builders Forum : 16 April 2013 Astana

17. Policy Options of Kazakhstan Auto Industry 1. Strategic path : Government Strong support 2 Natural path : Government Weak support YSHYUN, Machine Builders Forum : 16 April 2013 Astana

18. Two Paths : Malaysia vs Thailand

19. Malaysian path 1. Gov Policy : strong gov. support for local maker, local model in 1980s “Proton” to follow Korean Hyundai Path in 1970s [Look East Policy] Technical Assistance from Mitsubishi Motor/Japan 1995 60 % local Brand ( Proton, Perodua) Product Tax 2004 1.1 Auto Parts custom tax decrease for ASEAN countries Product Tax Increase for imported vehicle, local vehicle assembled by foreign makers Product Tax is internal tax not WTO issues but national interest 4. Strong Man PM : Dr. Mahatier “Hereafter 20 years, Malaysia needs protection policy for local model car 4. Against and argue WTO : 2009 10 Industry Policy Used car Import prohibited/ 50% reduction of consumption tax for local model /Old car support to buy local model 5. Free trade in 2006 : ten year after WTO 6. ASEAN member in competing Thailand’s parts industry Japanese support 7. Motivate Indonesia to start national car “Timor Project” in mid 1990s Indonesia : Low local content / dependent on MNC Japanese makers Screw drive factory YSHYUN, Machine Builders Forum : 16 April 2013 Astana

20. Thailand Path Gov Policy : weak support , no local maker , no local model 2. Japanese production hub for ASEAN countries production 90% Japanese Brand 2007 Eco car program below1300cc gasoline 1400 cc diesel car 500 Million Baht Invest 100,000/ year within 5 year, engine, core parts in Thailand  product tax 30% discount -> no corporate tax for 8 years -> no Tariff for Machine and facility for auto plant induce : Honda, Susuki, Nissan, Mitsubishi, Toyota Relatively strong parts industry by Japanese makers ASEAN member in competing Malaysia 0th auto making country in 201 2 YSHYUN, Machine Builders Forum : 16 April 2013 Astana

21. CU and WTO to Kazakhstan’s Automobile Industry YSHYUN, Machine Builders Forum : 16 April 2013 Astana

22. Competitors Analysis of Kazakhstan Automotive Industry

23. Forecast Russia -Renault allied with AvtoVaz will export vehicles to Kazakhstan unless Kazakhstan can not develop her own automobile industry. - Kazakhstan could impose ‘recycling tax’. But that will be hindrance to Kazakhstan’s automobile export. Governments of vehicle export countries will retaliate on vehicles produced in Kazakhstan (ex: China) - How Meet Foreign and Russian vehicles made in Russia exported to Kazakhstan China China will build auto plant in Belarus, Russia and Kazakhstan to use CU and WTO : Commercial Vehicle, car 3. Uzbekistan : small car export or assembly in KZ 4. EU : car assembly plant in Kazakhstan 5. Asia : Korea, Japan : car and commercial vehicle (Bus Truck) YSHYUN, Machine Builders Forum : 16 April 2013 Astana

24. Kazakhstan’s Policy Options Gov Strategic Decision : Malaysia or Thailand Path WTO (ref : China and Malaysia case) 1) More extended grace time for developing country 2) Financial Support : Corporate Tax Recycling Tax, Product Tax, Consumption Tax 3) Tariff reduction for Plant and facility for auto plant in Kazakhstan 4) Local Content Regulation : preferential tariff for high local content car 5) safety, emission regulations (Technical Center) 3. Industry Structure : number of auto makers  increase so many as of dealer’s perspective 4. Export Models  Local Model - Lada Model to export to CU and other countries - SUV Model -Commercial Vehicle 5. Local/ Foreign maker : start foreign model but target local model in the long CAUV : Central Asian Utility Vehicle : [ref: Toyota Kijang in Indonesia] 6. Parts Industry and Localization : Local Content Regulation, Joint Venture 7. Technical regulation/standards (GLONASS system, Technical Center by Gov. ) What is Kazakhstan’s Ideal Picture in the future : - Contingency plan - Steering and Advisory Committee

25. V. Discussions Value Added, Job Creation, Industrialization of Kazakhstan Large small River Natural path Strategic path Ship 1. How to protect local market under CU and WTO ? 2 How to take advantage of scale economy ? 2. How to increase value added in Kazakhstan ? 3. How to access Local content, local model

26. Thank for Your Attention Young-suk Hyun Ph.D Hannam University, Daejeon, Korea yshyun@hnu.kr, skype: yshyun88 mobile : +82-10-4270-1519 YSHYUN, Machine Builders Forum : 16 April 2013 Astana