The Russian government plans to reduce import duties on auto components to zero from the current 13%, but on the condition that foreign auto producers operating in Russia localise production of 50% of component parts for their vehicles within five years, Gazeta newspaper reported Thursday, according to Prime-Tass.

The Economic Development and Trade Ministry prepared a bill envisaging the reduction of auto component import duties in late 2004, Gazeta said, adding that the bill envisages reducing import duties on most types of auto components to zero, but duties on some components are expected to be reduced to 3%-5%.

The Economic Development and Trade Ministry said that approval of the bill would encourage foreign auto producers to launch production in Russia, Gazeta said.

President of the non-commercial partnership Union of Russian Car Manufacturers Yevgeny Levichev was quoted by Gazeta as saying that reducing the duty to zero would lead to the loss of 100,000-120,000 jobs in three-five years, and the loss of a sum equal to 1% of the gross domestic product (GDP).

"If the duties are kept at the existing level, auto component production in Russia is expected to increase and bring in U.S. $1.0 billion - $1.5 billion," Levichev was quoted as saying in Gazeta.

In late February Prime Minister Mikhail Fradkov refused to sign the bill and told Economic Development and Trade Minister German Gref to coordinate the bill with Russian auto producers, Gazeta said.

The Economic Development and Trade Ministry had to make additions to the bill, so that foreign auto producers have to localize at least 50% of their component production in Russia within five years, Gazeta said. Victor Semyonov, director of the Industry and Energy Ministry's machinery department, told Gazeta that the department endorses the bill.

"The level of localization and the period of time over which it should occur should be approved now," Semyonov said, according to Gazeta.

Semyonov also reportedly said that there are not enough producers of high quality auto components in Russia for foreign auto producers to reach the target of getting 50% of auto components from local producers.

Igor Korovkin, director of the Union of Russian Car Manufacturers' technical committee, said that if duties are reduced, foreign producers are expected to import pre-assembled components into Russia, resulting in 80%-90% of profit going abroad, Gazeta said.

Russian-French carmaker Avtoframos approves reducing duties, Gazeta said. Avtoframos' Press Secretary Vanessa Levy told Gazeta that unlike Ford, Avtoframos did not agree to localize component production and pays duties in full.

"We were not sure that we could find suppliers of high quality auto components in Russia," Levy said, as quoted in Gazeta, adding that 20% of the components for the Renault Logan are expected to be produced in Russia, and that Avtoframos plans to increase this figure in future. The company is negotiating with foreign component producers on the launch of production in Russia, Gazeta said, according to Prime-Tass.