Russia joined the World Trade Organization (WTO) in August 2012. The reduction in tariffs should improve the availability of cheaper wood raw materials from Russia and the position of Finnish companies in the Russian market. However, the researcher reminds us that the road is just beginning. Membership is not a shortcut to cheap wood procurement.
"The Finnish forest industry will save millions as Russian export and import duties are reduced. For example, import duties on several paper and cardboard products that are important for our exports have decreased or will decrease by ten percent after the transition period," says the researcher. Sari Karvinen Forest Research Institute from Metla.
"The decline in wood products is also ten percent, and in wooden buildings as much as 15 percent. Trade should also become easier as customs procedures are harmonized to meet international principles. At the same time, the transparency of operating methods will improve."
Only a few practical changes
According to Karvinen, membership immediately had a positive impact on Russia's image, but there are not many concrete changes. Although import duties have already been partially reduced and savings have been made, there have also been negative aspects.
"This is what has happened for Finnish companies exporting to Russia. Import duties on certain paper and board grades were increased instead of reduced. The duties are now 10 percent higher than the WTO agreement's duty level, and the error has not been corrected despite complaints. The issue was raised, among other things, at the Finland-Russia Forestry Summit at the end of last year."
From the perspective of the Finnish forest industry, timber tariffs are probably the single most important issue in Russia's WTO membership. Timber tariffs significantly affect the import of wood species and the availability of raw materials.
"Coniferous wood export duties were reduced by about half within the quota, as agreed. Birch duties were reduced by a third. Birch under 15 centimeters can still be exported duty-free."
Birch fiber is and will likely remain the most important imported commodity because there is not enough of it in Finland.
Imports of softwood logs and pulpwood from Russia were still almost at a standstill in October 2012 due to the initial difficulties in implementing the quota permit system related to the WTO agreement.
"The quota permit system was initially problematic for both sides, as the system is new and multi-stage. First, an import quota must be applied for from the EU, on the basis of which a one-time export license can be applied for from the Russian authorities. In Russia, only companies that do not have forest fees in arrears to the state can participate in the quota system. This may limit the export activities of the Russian side, as several harvesting companies are experiencing financial difficulties."
"After the initial awkwardness, routines are found, which reduces the problems. For example, the first export licenses were issued in Karelia in November last year."
Own production under protection
Karvinen points out that the Russian authorities' negotiating stance on, among other things, the obligations brought about by WTO membership is aggressive.
"The issues are difficult and the aim is to maximize the interests of one's own country. The Russian Minister of Economy stated in the autumn, before the WTO agreement came into force, that Russia would take an aggressive role in the WTO. So, legal proceedings can be expected."
Aggressiveness is related to the desire to protect its own production, also as a member of the WTO. Instead of protective tariffs, the Russians may develop other means, such as user fees for imported machinery. Of particular concern are SMEs, which operate mainly in the internal market. Large companies are believed to be more competitive and are expected to benefit from the opening up of the market in the longer term.
Text: Jaakko Liikanen
The full article can be read in the print issue of Paperi ja Puu magazine, 1/2013.
