EU worries over car sector support unfounded, Posted by Meosha Eaton

* EU complained to Russia over breaks for auto parts makers

* Complaints complicate Russia's WTO bid

* EU worried car component makers may move production

* Russia says EU worries are sign of car strategy success

By Gleb Bryanski

MOSCOW, May 25 (Reuters) - European Union concerns about Russia's state support for its car sector, which have hampered talks on Russian accession to the World Trade Organisation, are unfounded, a senior Russian official said on Wednesday.


Moscow expects foreign auto makers to invest $7 billion in Russia as a result of customs duty breaks granted to companies planning to assemble up to 350,000 cars per year and gradually raise their share of locally produced parts to 60 percent.

Deputy Industry Minister Andrei Dementyev told Reuters the EU raised the issue of breaks during the last round of negotiations in Geneva and was mainly worried over components producers moving their production to Russia.

"The sector is becoming very attractive for investment and there are concerns that some component makers can make a decision to move their production to the Russian Federation and close production in the EU," Dementyev said.

Russia is aiming to wrap up its 17-year-old bid to join the WTO this year, something that will be seen as a personal achievement for President Dmitry Medvedev, who won support for the campaign from U.S. President Barack Obama.

The EU concerns are the latest hurdle likely to delay the negotiation process. Analysts are saying that if Russia does not wrap up the talks by autumn they will be delayed by more years due to the election cycle in Russia and the United States.

POSITIVE EVALUATION

Prime Minister Vladimir Putin, a WTO sceptic, spearheaded the drive to bring leading global car manufacturers into Russia as part of an effort to diversify the economy away from the natural resources sectors.

The government pumped billions of dollars into the sector during the economic crisis to keep afloat ailing Soviet-era giants such as flagship car maker AvtoVAZ, which entered into an alliance with France's Renault.

Russia's planned custom duty breaks are aimed at getting car manufacturers not only to base themselves in Russia but to bring their component parts production there as well.

"The EU complaints, from our point of view, represent a positive evaluation of our auto sector development strategy. They confirm that our steps in this direction are successful," Dementyev said.

"We are not posing a threat to anyone by our development. Just the opposite, we are providing opportunities. A large scale auto production here from my point of view is a reason to rejoice, not to mourn," he added.

Renault, Ford Motor Co, Volkswagen AG, General Motors Co, Fiat and Magna International Inc are in talks to sign new assembly agreements or extend their old ones by June 1.

Russia's top negotiator, Maxim Medvedkov, said earlier this week that Russia wanted the new assembly regime to stay in place for at least 7 years after WTO accession.

Dementyev said that Ford, GM and Renault have wrapped up their negotiations while talks with Fiat are continuing. Components makers which supply to the giants are expected to follow and will receive similar benefits.

"We are not offering cheap labour, we are offering a new market which is actively developing," Dementyev said. (Additional reporting by Nastassia Astrasheuskaya, writing by Gleb Bryanski, editing by Mark Heinrich)