Renault's Logan Car Managing Customs Duties For a Global Product Case Solution

What is the impact of duties and tariffs on the Renault Logan supply chain? a. What is the impact of Free Trade Agreements on the configuration of Renault’s supply chains? b. Specifically, what impact does Romania’s accession to the European Union have on Renault’s supply chain configuration and why? c. What other options can or does Renault pursue to reduce tariffs? 

Duties and tariffs create barriers in Renault’s supply chain by increasing the cost of customs duties. On the other hand, Free trade agreements reduce these barriers by lowering costs for two major processes in Renault’s supply chain; sourcing of parts and delivery of the vehicle. For example, Russia had a free trade agreement with Ukraine, which meant Russia could import car parts to Ukraine on a zero percent duty rate. Similarly, Romania’s free trade agreements with Turkey and European countries allowed it to export CBUs to these countries without duty.

Romania, where Renault had invested €489 million, served as a source for CBUs and CKDs for some of Logan’s major markets. It supplied CKDs to support Logan assembly plants in Russia, Columbia, Brazil, India, Iran and South Africa. Romania also supplied parts to Morocco where they would be assembled into CBUs and exported to satisfy demand in Europe. After Romania’s accession to the EU, it would be able to use free trade agreements with many more countries like Brazil and be entitled to duty-free imports. A second outcome of the accession would be a duty-free rate on CBU imports from Morocco to Europe, which was previously subject to a 10% duty rate. Hence, these cost reductions on Romania’s accession to the EU will have a significant positive impact on its supply chain due to Romania’s position as a key player in global sourcing of parts and delivery of Logan.

Apart from Free Trade Agreements, these were the other options Renault pursued to reduce tariffs:

• Renault’s implementation of an automated trade compliance system helped take full advantage of trade agreements and lower compliance and documentation costs.

• Agreements with the local government; for example, an agreement between Renault and the Moroccan government that provided duty-free imports on CKD parts for the production of economical cars.

Renault can also avoid tariffs on imported car parts by searching for competitive local suppliers especially in developing countries where reduced labor costs often lead to competitive prices.