Protecting the Environment - or domestic automakers?

It is an oft-heard complaint that the continued operation of domestic automaker Zastava Automobili makes for higher prices of imported new and used automobiles in Serbia. One could argue that a country's ability to produce its own cars is worth the cost incurred, but it would be immaterial; Zastava itself hardly receives the proceeds of customs taxes. What is clear is that Serbia is far from alone in grappling with the issue.

Hungary and Poland's auto production may be limited to the assembly of vehicles designed elsewhere, but these industries are important enough that both countries have in the past slapped taxes on imported used cars. Both, by way of having lost their cases in legal action brought by the European Commission, have lost their abilities to do so. If Eastern Europe thought that EU membership would save it from old vehicles, it was clearly mistaken.

Yet two recent EU members—Romania and Bulgaria—have no intention of giving up the fight. "We must not become the trash can of Europe," warns Romanian Prime Minister Calin Popescu Tariceanu. "We must have the courage to confront the European Union if we have other interests."

While Bulgaria grapples with smog from old cars, Romanian automakers Dacia and Daewoo Craiova do not want a repeat, in their own back yard, of what happened in Poland upon its ascension to the EU in May 2004, when a wave of imported used cars sent sales of new cars spiraling downward.

Despite the objections of the EU, Romania's first-registration car tax will continue as part of the country's fiscal code. The tax ranges from about €120 for a new car, to up to €7,000 for older ("dirtier") imported used vehicles. The EC, of course, believes that the tax prevents free competition, thus violating EU rules.

The tax, says the EC, discriminates; does not correlate the age of the vehicle and its propensity to pollute with the amount to be paid in tax, and only covers a limited period of the car's life.

Dacia figures that its sales could fall by 50% if the tax is scrapped, and warns that layoffs may result.