WTO Entry Delayed by Timber Spat

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The European Union and Russia failed to agree on timber duties, the main hurdle to membership in the World Trade Organization, EU Trade Commissioner Peter Mandelson said Friday.

EU and Russian officials will seek to reach an agreement on timber when they meet again in three to four weeks, Mandelson told reporters in Moscow.

"I am persuaded that Russia really does want to complete negotiations for entering the WTO during 2008," Mandelson said. "I strongly support this."

In a bid to reduce Russia's dependence on oil and gas exports, the government has raised export tariffs on unprocessed timber to bolster industries in the country such as wood processing and manufacturing.

"We understand our Finnish partners' worries and understand that Finnish companies need to safeguard the supply of raw materials," including timber, President Vladimir Putin said at his annual news conference Thursday. "You should understand us, too. We want to develop wood processing within the country and that's completely normal."

EU member Finland buys about 20 percent of its wood from Russia.

Finnish papermakers Stora Enso Oyj and UPM-Kymmene Oyj, the two largest forest products companies in Europe, both had their outlook rating lowered to "negative" from "stable" on the likelihood Russia will raise export tariffs, Fitch Ratings said in a statement Friday.

Mandelson said the EU would not allow European businesses to be harmed by Russia's timber policies.

A number of options on timber would be "carefully weighed," by EU members and Russia before the new talks, he said, without providing details.

Mandelson said it was "ludicrous" that an economy of Russia's size was still outside the WTO, adding that the country was "reaching the limits" of its ability to sustain economic growth on the back of energy exports.

WTO membership will not be an unpleasant shock for Russian companies, because it had been agreed that tariffs would be progressively changed for "sensitive" industries such as textiles, car production, alcoholic beverages and agriculture, Mandelson said.

"There will be no big bang, sharp impact on the Russian economy from WTO accession," he said.

An eight-year acclimatization period for auto manufacturers, "I think, is unprecedented," he said.