The government may cancel the exchange rate export duty for the pulp and paper industry

The government may for the first time abolish exchange rate export duties for an entire industry: the Ministry of Industry and Trade has proposed doing this for the pulp and paper industry (PPI). Until now, although companies from various sectors of the economy have repeatedly raised requests to cancel or adjust the duty, the authorities have not met them halfway. Pulp and paper enterprises support the initiative, noting that the industry occupies a small share of Russian exports and state revenues from the duty will be significantly less than the losses of producers.

The Ministry of Industry and Trade has prepared proposals to exempt the pulp and paper industry from the flexible export duty, which is currently 7%. Deputy Head of the Ministry of Industry and Trade Oleg Bocharov announced this during a meeting of the Council on the Development of the Forestry Complex of the Russian Federation under the Federation Council. The document will be sent to the Ministry of Economy in the near future. According to him, the duty must be removed, since even without it Russia is losing foreign markets for paper and cardboard, and maintaining a duty rate dependent on the dollar exchange rate is fraught with the formation of losses for companies, the loss of export markets and a decrease in the efficiency of investments.

“This is the only sustainable market. No other sub-sector of the forestry complex can provide the export capacity that pulp and paper industry provides. Loading it now with seven percent would not only cause it a ten-billion-dollar loss, it would mean giving up the market to Brazil, Northern Canada, and through deep-water ports to the Southeast (Asia.— “Kommersant”), China,” the official noted. He admitted that if the pulp and paper segment is exempted from the flexible duty, other industries will ask for the same. All sectors of the economy in respect of which the duty was introduced, in particular, producers of fertilizers, coal, and aluminum, have already approached the government with a proposal to remove the additional fiscal burden. However, until now the authorities have only made targeted exemptions, excluding certain chemical and pharmaceutical products, sending parcels and documents, etc. from duties, but not entire industries.

Chairman of the Arkhangelsk Legislative Assembly Committee on Forestry, Agriculture and Ecology Alexander Dyatlov notes that the reorientation of export flows from Europe to Asia, on the one hand, led to an increase in transport costs, and on the other, to a decrease in product prices due to excess supply in accessible markets. As a result, the profitability of pulp and paper industry decreased, and for a number of products, including the cardboard group, it became negative. The introduction of export duties only aggravates the situation, he says: it turns out that enterprises have to pay duties not only on such marginal products as pulp, but also on products whose export is unprofitable.

According to the Center for System Solutions, in October, budget revenues from pulp and paper industry enterprises amounted to 742 million rubles. As Denis Kondratyev, managing partner of the center, notes, Russia has a relatively small share (2.4%) in the global production of paper and cardboard. “If the introduction of duties on specialized markets can relatively painlessly provide the budget with an additional source of income, then for small segments of the economy such duties can cause significant harm,” he says. According to Mr. Kondratyev, changes in international trade conditions led to a reduction in exports of paper and cardboard from the Russian Federation by 22.5% in 2022 and by 13.4% in ten months of 2023. According to the Center for Social Development, in October (the first month of the duty) an additional intensive decrease in exports of 9.2% was recorded. “We see an increase in prices for supplies from Russia to China in October due to the introduction of duties, which reduces the competitiveness of domestic products, since, given the very low market share, Russia is not in a position to dictate prices,” says Sergei Kondratiev. He believes that Russian companies, on the contrary, should lower prices in order to squeeze US, Canadian and European enterprises out of the Chinese market.

Olga Mordyushenko