VZCZCXRO2360
RR RUEHAG RUEHDF RUEHIK RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK
RUEHYG
DE RUEHMO #3311/01 3220318
ZNR UUUUU ZZH
R 170318Z NOV 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 0724
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 4445
RHEHNSC/NSC WASHDC
RHEHAAA/WHITE HOUSE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS SECTION 01 OF 02 MOSCOW 003311 
 
SENSITIVE 
SIPDIS 
 
STATE PLS PASS USDA/FAS FOR OCRA (FLEMINGS, KUYPERS) AND 
ONA (SALLYARDS, MURPHY) 
COMMERCE FOR MAC (MATT EDWARDS, JAY THOMPSON, JACK BROUGHER) 
STATE PLS PASS USTR (KLEIN, HAFNER) 
 
E.O. 12958: N/A 
TAGS: ETRD EAGR EINV ENRG ECON RS
SUBJECT: RUSSIA PUTS OFF PROHIBITIVE DUTY ON TIMBER EXPORTS 
 
THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR 
DISTRIBUTION OUTSIDE USG CHANNELS AND NOT FOR POSTING ON THE 
INTERNET. 
 
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SUMMARY 
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¶1. (SBU) In a major trade concession to the EU, PM Putin 
announced on November 12 that Russia would delay for 9-12 
months the implementation of a prohibitive duty on uncut 
timber and round wood exports, which was scheduled to take 
effect as of January 1, 2009.  Putin's announcement 
eliminates, at least temporarily, one of the most contentious 
trade issues between Russia and the EU, and a major sticking 
point for the EU in Russia's WTO accession.  Russian and EU 
trade negotiators now have additional time to come up with a 
long-term resolution of the appropriate tariff level for 
Russian timber exports, and to address the question of 
European investment in the development of Russia's 
wood-processing industry. 
 
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Putin Delays Prohibitive Timber Duty 
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¶2. (U) On November 12, during a press conference in Moscow 
following talks with Finnish Prime Minister Vanhanen, Russian 
PM Putin announced that Russia would delay for 9-12 months 
the imposition of a prohibitive duty on exports of timber and 
round wood, which was scheduled to take effect as of January 
1, 2009.  In explaining the decision, Putin said  imposition 
of the prohibitive duty, during a period of global financial 
and economic crisis, would have led to major cuts in 
production and job losses for Finnish wood processors, who 
rely heavily on Russian round wood imports to supply Finnish 
sawmills and other downstream wood processing facilities. 
However, Putin also noted that Russia would not abandon 
long-term plans (which he has championed) to develop a 
domestic wood-processing industry in Russia.  He stated that 
Russia would establish a package of incentives for 
investments in domestic wood processing, including for 
foreign investors, though he did not offer any specifics on 
the incentives. 
 
¶3. (SBU) Putin's announcement resolved, at least temporarily, 
one of the most contentious issues in Russian-EU trade 
relations and a major sticking point for the EU in Russia's 
WTO accession.  In a press conference on November 10, Maksim 
Medvedkov, Russia's Chief WTO Negotiator, had characterized 
the duty on timber exports as one of the three remaining 
"political questions" that still needed to be resolved in 
Russia's accession (along with the issues of agricultural 
subsidies and the commercial behavior of state-owned 
enterprises).  According to a French diplomat in Moscow with 
whom we spoke, the export duty on timber had also become an 
issue in the EU-Russia Partnership and Cooperation Agreement 
(PCA) negotiations, with EU diplomats pushing for its 
inclusion on the agenda of the Nice Summit during the October 
28 Permanent Partnership Council Session in St. Petersburg. 
 
¶4. (U) EU diplomats quickly welcomed Putin's announcement. 
EU Trade Commissioner Ashton issued a statement noting that 
the postponement of the duty was a "very positive move by 
Russia" and "a welcome result following months of 
negotiation."  She added that the announcement gives much 
needed "breathing space to allow us to continue working 
towards a definitive solution to the problem of export 
duties, which is an essential step in our bilateral trade 
relations and for Russia's accession to the WTO." 
 
¶5. (SBU) Privately, local EU diplomats told us that the issue 
of Russian timber export duties has long been a sensitive 
labor issue for Finnish politicians.  The current duty allows 
Finnish wood processors to make a profit and not scale back 
their operations.  However, the proposed increase would have 
likely led to massive layoffs at Finnish sawmills and other 
downstream wood processing facilities.  In the wake of the 
announcement, they speculated that Finnish investors will 
likely continue to make major investments in the development 
 
MOSCOW 00003311  002 OF 002 
 
 
of Russia's wood processing industry. 
 
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COMMENT 
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¶6. (SBU) Although Russian and EU trade negotiators will still 
need to agree on a permanent solution to the question of 
timber export duties, Putin's postponement of the duty 
increase is a welcome salve on one of the major irritants in 
EU-Russian trade relations, PCA negotiations, and EU support 
for Russia's WTO accession. 
BEYRLE