Timber Duty to Rise, Despite EU Qualms

Russia will introduce a planned increase in timber export duties effective from Tuesday despite strong objections from the European Union and the risk it could hurt its chance of entering the World Trade Organization.

President Vladimir Putin ordered an increase in duties to boost the domestic timber processing industry. The duties will rise to 25 percent from 20 percent on April 1 and the plan is to raise them to 80 percent next year.

The country has around one-quarter of the world's forests and wants to break its dependency on oil and gas revenues by promoting non-energy industries.

Experts said the increase would hurt processing firms in Finland and Sweden. Finland imports about 20 percent of its timber from Russia and higher duties will add to the costs of paper firms such as Stora Enso, the world's biggest paper producer, UPM-Kymmene and M-Real.

The rising duties will also complicate Russia's WTO accession talks because EU diplomats say Russia will be in breach of a 2004 trade deal it signed with the European Union.

Russia has denied it is breaching the agreement, which will become public only after Russia's accession.

"I have seen the 2004 agreement and I can assure you that Russia's actions violate this agreement," an EU diplomatic source said. He said Russia had never offered the EU a comprehensive explanation for the rise in duties.

The EU had previously said the April increase "would put an end to timber trade and make it impossible to find a solution in negotiation on timber duties."

The government is eager to complete accession talks before Ukraine, which has about five months to ratify its own WTO agreement. Russian officials say Ukraine's entry could further complicate Russia's own accession.

"No one is breaching any agreements. This agreement will go into force only after Russia will become a WTO member. Everything Russia does before that does not contradict anything," a Russian government source said.

"We never promised anything. There were attempts ... to agree on a 'standstill principle' and freeze the trading regime during the negotiations, we never regarded this principle as part of the negotiation process," the source added.

Finance Minister Alexei Kudrin, who leads the government's WTO accession talks working group, met European Trade Commissioner Peter Mandelson in Brussels this month and said talks on timber duties were "difficult but constructive."

Kudrin sees the WTO entry as the country's next major step towards integrating the country into the global economy after the liberalization of capital movement in 2006.

Kudrin will travel this week to Saudi Arabia and the United Arab Emirates, two countries with which Russia has yet to conclude bilateral WTO deals, and will meet U.S. counterparts in Washington during an International Monetary Fund conference.

His schedule indicated he wanted to achieve a breakthrough in the talks before an expected government reshuffle in May after the inauguration of President-elect Dmitry Medvedev.