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Russia to stand firm on raw timber duties – official

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Russia will not back down on plans to increase duties on its timber exports, a senior official said on Thursday, even at the risk of jeopardizing its World Trade Organization entry.

Russia, the largest economy outside the WTO, plans to slap prohibitive duties on raw timber exports starting next year, running into a conflict with the European Union and potentially hurting its chances for a WTO entry. “Russia’s position is clear and we do not see any signals from the government a decision on the duties may change in connection with the WTO entry talks,” Valery Roshchupkin, head of the State Forestry Agency, told a news conference. The duties are set to rise to 80% from the start of 2009 from the current 25%, adding to costs for paper companies, such as Stora Enso, the world’s biggest paper producer, UPM-Kymmene and M-Real. Finland, which shares a 1,300 km (812-mile) border with Russia, said it could lose up to 25,000 jobs if wood export duties came into force. Finland’s economy suffered from both the collapse of the Soviet Union and Russia’s 1998 financial crisis.

EU diplomats say Russia will be in breach of a 2004 deal it signed with the European Union. Russia has denied it is breaching the agreement, which will become public only after Russia’s accession.  A delay in the WTO accession means that Russia will also have to enter negotiations with ex-Soviet neighbor Ukraine, whose parliament ratified a protocol on joining the WTO this month. Ukraine has said it will not hold up the Russian bid.

Russia’s Finance Minister Alexei Kudrin, who oversees the WTO accession talks, has held several rounds of negotiations with EU trade Commissioner Peter Mandelson recently but the talks have yielded no results so far. Russia, which controls one fifth of the world’s timber, exports it mainly to Finland and China, while importing processed wood products which were worth $2.5 billion in 2007. Russia seeks to make its economy less dependant on natural resources and develop higher value-added sectors. Roshchupkin said domestic energy and metal firms were now ready to invest in wood processing and foreign firms should follow suit.

Russian steel magnate Alexei Mordashov, who last year announced plans to set up a joint venture with UPM-Kymmene and invest over $1 billion in wood processing, recently called for a compromise with the EU over duties. Roshchupkin said Russia needs to process wood to develop private homes construction needed to meet ambitious government plans to provide housing. He said biofuels such as pellets and paper packaging were other priorities. “We say -- create new factories, set up the most basic wood processing. Any processing will do, leave at least some of the value added in the countryside, and you will receive beneficial treatment,” Roshchupkin said, referring to foreign investors.

The benefits offered will include granting forest plots at half the price without an auction to processing plants worth no less than 300 million rubles ($12.85 million), while local governments will receive budget funds to build roads. “Our main task now is to inspire confidence into investors,” Roshchupkin said. In February the authorities in the central Kostroma region turned down a $1.7 billion sawmill project proposed by Finland’s Ruukki and chose a Russian firm instead. Roshchupkin said Ruukki would now build a sawmill in the northern Komi region, closer to Finland. (Reuters)

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