How Will Russia’s Membership in the World Trade Organization Affect US Exporters of Logs and Lumber?

On December 16, after 18 years of halting progress, the World Trade Organization (WTO) has voted to approve Russia’s membership application. The Russian parliament has 6 months to ratify the agreement, and their membership will become final within 30 days of ratification.

In general, membership in the WTO requires that countries commit to the following tenets:

• Nondiscriminatory treatment of imports of goods and services
• Reducing tariffs and binding tariff levels
• Ensuring transparency when implementing trade measures
• Limiting agriculture subsidies; enforcing intellectual property rights (IPR) of foreign holders of such rights
• Forgoing the use of local content requirements and other investment measures that limit imports
• Opening government procurement contract opportunities to foreign firms
• Accepting WTO dispute settlement procedures.

Many have speculated what Russia’s WTO membership would mean for US exporters of wood and lumber to China. Based on current news reports and our conversations with clients involved in the log and lumber trade with China, here’s our assessment:

• A decrease in wood and paper tariffs in Russia will take rates from 13.4 percent to 8.0 percent on average. This tariff reduction will make Russia more competitive (though only marginally) with other exporters. Even with the improved cost competitiveness, though, Russia will 1) retain its commitment to export wood and paper products, not logs; 2) not invest significantly in the infrastructure improvements necessary to increase exports from current levels; and 3) need to replace lost logging capacity, which will take several years at least.
• Russia will also institute a quota regime for wood exports; timber exported under the quota will be taxed at a rate lower than the current duty, while sales abroad exceeding the quota will be levied at a higher rate. This policy will allow Russia to focus on its goal of establishing a wood and paper products manufacturing base within its borders.
• Even with cheaper Russian logs, Forest2Market believes it unlikely that Russia will displace the US, Canada and other exporters to China in a significant way. First of all, demand from China will continue to grow; that country recently announced its intention to loosen credit, and as a result, demand in China for logs and lumber will likely continue on the upward trend that we saw in early 2011. While China will likely increase the volume of logs it sources from Russia, Russia’s inability to increase supply and China’s growing demand will reduce the impact that Russia’s entry into the WTO will have on US exporters. Supply from developed countries will continue to be viewed as more stable.

See our previous story on Russian exports.

Read the latest report from the USDA’s Global Agricultural Information Network (GAIN) about the Forest Sector in Russia.