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Russia revises import duties on paper and board, violating WTO commitments

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BRUSSELS, Feb. 5, 2014 (RISI) - Russia, Belarus and Kazakhstan have revised import duties on certain paper grades, including graphic paper and cartonboard, which were valid between April 20, 2013 and January 19, 2014.

The decision, which was taken on January 29 by the customs union which Russia formed with Belarus and Kazakhstan, will come into force On March 1. The change in tariffs for several paper and board grades, including medium weight coated (MWC) paper, coated woodfree (CWF) paper, GC/GZ cartonboard and board for liquid packaging will conflict with Russia's commitments as a WTO member to lower its import duties to 5% as of its entry date in August 2012.

Following the January decision of the customs union, Russia's import tariffs on lightweight coated (LWC) paper will be set at 10% as of March 1. The duty, which was at the 5% rate between April 20, 2013 and January 19, 2014, subsequently increased to 12.5% following the expiry of the previous decision.

The tax duty on MWC paper, which was previously 5% and rose to 15% as of January 20, 2014, will be set at 10% as of March 1.

Whereas a reduction to 10% for import duty on LWC paper complies with the WTO accession terms, this is not the case with regard to MWC paper. Under the WTO entry terms, Russia's MWC paper import tax is supposed to be as low as 5%, as is the case for all other publication paper grades.

Likewise, a higher-than-agreed import duty on coated woodfree (CWF) paper should stand at 5% under the WTO terms, but it has instead been set by the customs union at 10% from September 1, 2014. Until September, the duty will remain at 5%.

The 10% duty on MWC and CWF paper grades has been set by Russia to protect domestic producers, notably the Kama mill, which runs an 85,000 tonne/yr LWC paper machine, and Ilim Group, which launched CWF production at its Koryazhma mill last November, according to Russia's association of paper merchants SBO.

"The Kama mill makes only lightweight coated paper, but it would want to avoid competition from paper in a weight range of 72-90 g/m2, too. Therefore, Kama advocated for a 10% [import] duty on MWC paper, which will apply from March 1. It's a direct violation of the WTO entry agreement which Russia signed in 2012," said SBO's executive director Olga Shirokova.

According to Shirokova, Ilim Group, which is Russia's sole producer of CWF paper, is also being protected by the government via a direct WTO agreement violation.

"Ilim has just started its CWF paper production [at Koryazhma mill]. The firm has not yet come to the market with any sizeable commercial volume, therefore the import tax increase from 5% to 10% is being delayed until September," Shirokova said. She added that even when Ilim ramps up its machine, its annual CWF paper volume will not exceed 50,000-70,000 tonnes. According to SBO, Ilim's share in the Russian CWF paper market, which is estimated at 230,000 tonnes/yr, will be around 15%.

"Ilim plans to offer quite a limited CWF paper weight range. It will produce only 115 g/m2 and 135 g/m2 paper. So even once its PM reaches its full CWF paper capacity, [Ilim's] market share will not exceed 15%," Shirokova explained.

A similar protection mechanism for the customs union's domestic producers applies to cartonboard grades including GC/GZ cartonboard and board for liquid packaging, where import duties will remain at 15% in the long term.

"Normally the import duty on GC/GZ cartonboard should be at 5% [in line with the WTO accession agreement], but Belarusian authorities asked the customs union commission to retain the 15% duty, arguing they have an investment project coming up in that segment. While this project is being carried out, the duty will remain at the 5% rate, before it rises at the end of 2015," Shirokova said.

She continued: "In the case of the 15% duty on board for liquid packaging, the Russian government is protecting the interests of IP Svetogorsk. In this paper segment, where IP is in direct competition with Finland's Stora Enso, we see clear protectionism from the Russian government, which is not respecting its WTO membership obligations," Shirokova said.

CEPI, EC address the issue: The Confederation of European Paper Industries (CEPI) has said that it was deeply concerned about Russia's "persistent failure" to comply with its WTO commitments with regard to import tariffs.

"Russia is an important market for [our members] especially if you consider the current situation with demand for certain paper grades in Europe. What we see is that since mid-2012 when Russia became a WTO member, it has not respected all its commitments, far from it," CEPI's trade & competitiveness director Bernard Lombard told RISI.

Lombard said that CEPI has been working with the Directorate-General for Trade (DG Trade) of the European Commission (EC) to reach an acceptable compromise on this issue.

"It's quite challenging to work with the Russian authorities on this. [...] Russia uses its own customs codes and sub-code numbers [for paper products] with vague descriptions of what is classified under those codes. The EC is losing its patience and so is the European industry. It's high time for the EU to consider a more formal action at the WTO level," Lombard said.

Lombard added that it might take quite some time before this problem is solved, though.

"The problem with Russia's violation of WTO commitments with respect to import duties is that the negotiations are heavily impacted by other political developments, and apart from paper and board this concerns tariffs on other sectors such as poultry, palm oil and car parts, for example. The customs union, which Russia set up with Belarus and Kazakhstan, is adding to the complexity of the issue too. However, we are not dropping this issue; quite the contrary. Russia still has to learn that being a member of the WTO brings benefits but also legal obligations," Lombard said.

Источник: RISI



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