Russia's Export Tariff Could End Timber Imports into Finland

Helsinki, Finland, 12 February 2007 --/Helsingin Sanomat/-- Russia is raising the export duties of felled timber so high that it is likely to mean the end of imports of raw timber from Russia into Finland within a few years.

Russia is using its customs and duty policy to compel Western countries to build pulp and paper factories in Russia.

Finland's Minister of Foreign Trade Paula Lehtomäki says that Russia's move violates the World Trade Organization (WTO) treaty that Russia signed three years ago.

The cutoff of imports is likely to cause serious problems for Finnish industry, as one fifth of the wood used by Finnish pulp and paper manufacturers is imported from Russia. Shoring up the gap with the help of Finnish sources is seen as an overwhelming task.

The Finnish Forest Industries Federation has protested against Russia's moves. Anders Portin, the resources manager of the association, says that it is pointless to hold bilateral discussions between Finland and Russia on the matter.

According to the Finnish forest industry, help is needed from the European Union and the World Trade Organisation. Portin feels that the export duties violate the spirit of the WTO.

Russia is currently negotiating the conditions under which it will join the WTO. According to Portin, wood issues need to be taken up in the discussions.

Russia is raising export duties at a very fast pace. In July, the tariff was raised from EUR 4 per cubic meter to EUR 10, and in April next year it is to be EUR 15. In two years, the duty is rising to EUR 50 per cubic meter.

Initially, birch will be left outside the duties, but in 2011 its exporters will be burdened by an export duty of EUR 50 per cubic meter.

The duties will effectively put a stop to imports of Russian wood to Finland, as the full price of felled timber logs in Finland is EUR 52 per cubic meter. Prices of pulp wood vary between EUR 13 and EUR 24 per cubic meter.

The most serious impact will be endured by Stora Enso, which buys large amounts of Russian birch for its pulp factories.

Finland's own resources of birch fibre are not sufficient for Stora Enso's needs.

What is surprising in Russia's decision is that the country is punishing exports of aspen as well. The tariff on aspen especially hurts the Metsäliitto subsidiary M-real, which has built factories in Joutseno and Kaskinen, which use aspen as a raw material.

Stora Enso and Metsäliitto point out that Russia has no factories that would use birch or aspen, which are used mainly as firewood in Russia.

Stora Enso Import Chief Kauko Parviainen does not believe that the import tariffs will be implemented as extensively as had been announced.

"If imports are stopped, Russia will destroy its own forest industry. Men, machines, and organisations would disappear from the forests, which cannot be in the best interests of the country", he says.

In the short term the tariffs will help Russia's own industry. "When the foundation of forestry disappears, and no new industry comes to replace it, then we are in a serious situation."

Russia earns EUR 500 million from its exports of felled timber to Finland. Exports of wood to Finland account for 2500 - 4000 jobs in the forest industry, in addition to which it has promoted employment in the transport sector.

Imports of cut timber are greatest to Karelia.

Finnish industry uses 60 million cubic meters of Finnish wood a year, and buyers feel that Finland could afford to increase felling by 10-15 million cubic meters.

However, owners of Finnish forest land are less eager than before to sell their trees, as increased prosperity means that there is less need to sell trees to maintain a standard of living.

Portin feels that forest owners could be encouraged to sell more timber by implementing tax breaks.

In addition to Finland, Russia exports large amounts of raw timber to China, Japan, the Baltic Countries, and to Central Europe. Export duties are to apply to these areas as well.

Foreign Trade Minister Paula Lehtomäki points out that the matter did not come as a surprise to the European Union, or the Commission, because Russia has said before that it would take the action.

Lehtomäki noted that Russian membership in WTO is something that everyone hopes for, "but when Russia's actions violate treaties, we must discuss how to move forward."