Russia - a different kind of neighbour

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By Antti Blåfield
     
      The Russian government has made a decision that the Finnish forest industry has long feared. Russia is raising the export tariffs on the sale of raw timber by degrees, so that in 2009 the tariffs will be 12 times the present level.
      The decision effectively means that imports of wood from Russia to Finland will come to an end.
     
The Finnish forest industry imports one-fifth of the raw timber that it needs from Russia.
      Half of the wood imported from Russia is birch, which is primarily used in the manufacture of uncoated fine paper, such as photocopy paper. Birch logs are used to make plywood, and logs from coniferous trees go to plywood factories and sawmills.
      In the manufacture of fine grades of paper, short-fibred birch can be replaced - and has been replaced - by coniferous and eucalyptus fibres. However, it is more difficult for the wood products industry to adapt to the change.
      The forest industry of Eastern Finland is in jeopardy. The companies have calculated that the decision could lead to the loss of thousands of jobs.
     
A sharp rise in export duties unreasonably encumbers the activities of companies in the neighbouring country.
      The reasons given for the decision are also surprising. If the purpose really is to encourage investment in Russia, then does this decision promote development in the field?
      Experts in the wood trade say that increasing export tariffs many times over will mean that companies currently harvesting forest will face difficulties, and that Russia's frail forest infrastructure will deteriorate again.
      An internal purge of the country's forest sector might actually be one goal. In this way the Russian government will be able to reorganise the timber supply to companies of its own choosing, bringing natural resources in this sector as well under the direct supervision of the political leadership.
      Who would dare invest in a country like this?
      The renowned Ernst & Young consultancy firm comments in a recent report that although political risks may be great in Russia, the opportunities are tremendous. The Russian forest industry is undersized, considering the country's population of 143 million and its growing economy.
      On the other hand, Europe already has excess capacity, and that is why it might not be such a good idea to make very many investments in the billions on the basis of Russia's domestic demand.
      The view looks different east of Moscow.
      China is an even bigger buyer of raw timber than Finland is, and the wood processing industry in China still faces a growing market. If Russia prevents exports of wood to China, it just might persuade investors to build factories serving the Chinese market in Russia. The fate of Finland is a mere sub-plot in this game.
     
How is Russia to be influenced? Appeals have already been made to Russian President Vladimir Putin - in vain.
      There is still the WTO card.
      Russia's negotiations on membership in the World Trade Organisation are in the final stages. In those talks it is possible to demand that Russia adhere to the bilateral agreement that it has with the European Union, which is linked to its WTO membership talks. In the view of the European Commission, Russia promised in 2004 that no export tariffs would be placed on raw timber exported to Europe.
      The coming months will show how the EU defends the interests of a small member state.
      What will the Commission do if Russia does not back off in the export tariff matter?
     
And what will Finland do if the Commission backs off?
      Under the rules of the WTO, new members are approved by a two-thirds majority, whereas the requirement used to be one of consensus.
      Russia's WTO treaty includes issues related to both the jurisdiction of the EU and that of member states, and therefore, at least Finland feels that the EU's Council of Ministers needs to be unanimous in approving Russia's WTO membership.
      A small country is being set up to play a big game.
     
Helsingin Sanomat / First published in print 15.2.2007


Previously in HS International Edition:
  Professor says wood tariffs could be payback for Finnish rejection of undersea cable (16.2.2007)
  Russian export tariff could end timber imports into Finland (12.2.2007)

ANTTI BLÅFIELD / Helsingin Sanomat
antti.blafield@hs.fi