Small northern country brings Russia to its knees

Russia will probably keep timber export duties unchanged and may even lower them, Elvira Nabiullina, Russia’s Minister for Economic Development, said after meeting with Finnish Trade and Development Minister Paavo Väyrynen on Saturday. The final decision is due in November.

In 2007 Russia announced plans to raise more than tenfold export duties on logs, from €4 per cubic meter to prohibitive €50 in 2009. So far the levy went to as high as €15. The rise hurt paper making firms in the EU countries, first of all Finnish giant Stora Enso, to the North-West of Russia, and rapidly growing Chinese timber processors, in its Southern and Eastern borders. Determination to stop the export of raw wood has become a huge damper on the WTO-Russia relations.

Russia houses up to a quarter of the world's total forest and half of the planet’s coniferous wood. Timber business has a potential of becoming the next biggest industry after oil and gas. The industry, however, has a long way to go.

Rising export duties had the purpose to goad the wood processing and paper making in Russia. Currently foreign companies buy timber in Russia not only for domestic consumption but, and mainly, to export wood products and paper around the world, Russia included. With time Russians have become more and more dissatisfied with their place, with the least added value and minimal profit, in the production chain.

Logging of forest as it is now fuels criminalisation of the industry. Cutting and export of logs is often illegal involving tax evasion, and violation of the forestry laws. According to some researches up to half of the timber arriving to foreign buyers is either stolen, or untaxed, or both.

Teams of wood cutters are often comprised of illegal immigrants or people with the criminal past. They work with primitive equipment and the safety basics are routinely neglected. The injury and mortality rates in the industry are staggering.

Vladimir Putin spoke in March, 2006 very emotionally for the prohibition of the export of raw timber. "If we continue chewing snot from one year to another we change nothing," he said. "We must take all steps to stimulate wood processing in Russia and stop simply sending logs abroad. They hustle here and there in great numbers, and nothing's been done. I understand why this is happening," he paused, "and you understand," he paused again, "these lobbyists... They think of their own interests. But you must think of the people's interests. Since 1999 various projects are being considered, and not a damn thing's been done. I know these blathers, and every year we have the same."

Ironically, Dmitry Medvedev comes from the timber business. In the 1990s he worked as the director of the law department for Ilim Pulp, a leading domestic pulp and paper company.

Renouncement of the program to raise export duties would mean failure to modernise Russian timber and paper industry. It would also mean the personal defeat of Vladimir Putin.



September 21, 2009