Status of proposed Russian log export tax reduction

In late 2010, the Russian government announced it would reduce the log export tax if and when Russia joins the WTO. No specifics about the proposed reduction were provided by the Russian government, and no further information has been made public. What is the current status of the proposed export tax reduction?

• Finnish government sources claim that the softwood log export tax will be reduced by 50% (to 12.5% from current 25%), and the hardwood log tax by 65%; in addition, new exclusions will be made for specific hardwood pulp log classifications.
• At the same time, the Russian government has been quiet about any details of the proposed tax reduction. Putin still claims Eastern Russia will process all of its potential log harvest in Russia within the next seven to eight years.
• Questions persist about what the export tax reduction will be and how long it will stay in effect if imposed.
• Chinese and Japanese log importers expect to receive a similar export tax reduction as Europe, but there has been no comment from Moscow so far.
• Russia has emphasized there will be no change to the current 25% (minimum €15/m3) log export tax until/when Russia joins the WTO.

So, what is the potential impact from a reduced Russian log export tax ?

• A 12.5% reduction in the log export tax would mean a log-cost reduction of about $10/m3 delivered to China or Japan, representing only a minor advantage (partly offset by rising Russian harvesting and sawmilling costs).
• Currently, Russian logging volumes are limited due to numerous logging constraints and logistics, as well as rising costs.
• The tax reduction, if applicable to log exports to China, would make Russian logs more cost-competitive in China, but only by a relatively small amount.
• Russian log exports to China are expected to increase slowly over the next two to three years, even with a 12.5% log export tax. It is expected it will take at least a few years for the Russian logging sector to rebound significantly.

Source: International Wood Markets Group, http://www.fridayoffcuts.com/