Raw Timber Duty Increase Planned

The government plans to increase export duties on unprocessed timber and speed up road construction to modernize its forestry industry, Deputy Economic Development and Trade Minister Andrei Belousov said Wednesday.

"Forestry is one of the priority industries" and is not operating efficiently, he said at a meeting of the government's timber council in Moscow.

Russia, whose 83 billion cubic meters of wood account for nearly one-quarter of the world's supplies, imports one-third of its timber-derived products, Belousov said. Unprocessed timber accounts for about half of Russian wood exports he said.

"We understand very well that just increasing duties cannot solve the problem," Belousov told reporters after the meeting. The government also plans to increase road construction in cooperation with private investors to ease access to forests and to crack down on illegal logging, he said.

The government raised export duties for unprocessed timber last July to shore up domestic production and will raise the tariffs again to 25 percent of the value of timber products on April 1. Another increase to as much as 80 percent is planned for January 2009, the Economic Development and Trade Ministry said.

"The duties have already contributed to a considerable drop in timber imports from Russia to the Nordic region," Andreas Zsiga, a credit analyst with Standard & Poor's Ratings Services, said Wednesday. The planned January increase "will probably put a complete end to Nordic imports, as Russian wood will be simply unaffordable," Zsiga said.

Countries including Finland and Sweden have urged the European Union to press Russia on the issue, saying the country was reneging on promises not to raise the duties agreed during World Trade Organization negotiations.

Russia has sought to join the body for almost 15 years. EU member Finland buys about 20 percent of its wood from Russia.

The duties are still being discussed in Russia's WTO negotiations with the EU, Belousov said Wednesday. Higher levies have proven their effectiveness, as investment in the timber industry rose to $2.6 billon in 2007, compared with $1.7 billion per year earlier, he said.

Challenges of working in the industry include the difficulty of finding engineers and other qualified employees to work in the country's remote regions, said Peter Oswald, head of the Europe division at Mondi Group, the South African paper and packaging company spun off by AngloAmerican.

To be sure, investment in the industry presents "long-term" opportunities, Oswald said during today's timber council meeting. "In a world with scarce wood resources, Russia is the place to be."