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Foreign Trade
The external economic activity has a leading position in the Republic’s social and
economic life. Traditionally, export covers 70% of the Republic’s overall foreign trade turnover
and has a certain uptrend. The cost of export exceeds 50% of the cost of industrial production in
Karelia.
Karelia’s foreign trade is mainly aimed at European markets. The Foreign trade turnover
with European countries covers 80% and with EU countries - over 60% of the Republic’s total
turnover. A distinctive tendency over the last years is the decrease of the CIS’s share in the
Republic’s foreign trade turnover (1994 - 9.3%; 1998 - 2.4%).
There are several basic factors defining the importance of export for the republic
development.
Firstly, export is a key source of currency returns required to purchase foreign equipment
and consumer goods.
Secondly, while the domestic demand is declining there is a foreign markets demand for
several good. therefore, exports determines the dynamics and structure in export orientated
industries (forest, wood-working, pulp and paper, iron and non-ferrous metallurgy, fishery) and
in industry in general.
Besides, the republican export forms a rather stable income of exporting companies and
then has an influence on social and economic categories, viz. wages, tax returns and payments to
social funds, employment rate.
Starting from 1996 there has been a downtrend of export volumes in terms of money which
to some extent repeats the All-Russian trend and is caused by several reasons.
Since 1996 there has been a decline of the world’s demand for raw materials and,
accordingly, export prices has gone down.
The structure and main quality parameters of the (Karelian) Russian export more and more fall
behind the mainstreams of international trade development, consisting in steady growth of the
processed product share.
The international competition has become stronger against the background of growing
state support to export operations and measures to protect the interests of national manufacturers
in other countries. This factor has a very special importance in processing industries, producing
goods with a deeper processing rate (wood-working industry, machine engineering, etc.).
The system of certification/licensing and quality control for Karelian export is not
adequately developed that causes losing in export price. The unreasonable liberalisation of
external economic activity in Russia brought a lot of inexperienced exporters into foreign
markets. This resulted in distinct loss of export efficiency, in particular in forest/timber industry.
Deficiency of internal organization and co-ordination of activities among exporters leads
to rising of unfair competition among home exporters and often makes it possible for customers to
reduce purchase prices for Karelian export products.
Deficiency of adequate experience and finance among Karelia exporters often leads to
poor marketing of their products, poor understanding of customers’ varying demands which
dictate a certain retargeting at new products, assortment and quality. It is all happening while
requirements of international standards and environmental safety become more strict and new
energy and resources saving technologies are introduced in a large scale.
The situation with marketing products of processing industries at the world markets is
different. The world trade has put forward its leaders who control products marketing and have
possibilities to limit the activity of Russian/Karelian exporters at the western markets. The
International production co-operation of leading countries counts on joint-ventures and co-
operative alliances, specialising in certain industries. It promotes quality standards and product
competitiveness. A share of intermediate products and component parts in co-operated supplies of
transnational companies grows up. It gives Karelian companies an opportunity to “break
through” to the world markets by means of international co-operation.
A certain decline in export operations has also to do with a reduction of export deliveries
to CIS countries, including Byelorussia because of low solvency of such partners.
A matter of fact starting from 1996 the external economic activity has been carried on
within the so-called "currency corridor" which fairly reduced the export efficiency because
manufacturing costs have been outrunning Rouble-to-USD exchange rate and such exchange rate
has been tied in to an average inflation rate in Russia. The export production was tied up with the
so-called "costs inflation" as any other Russian production working for the home market. From
this point of view the collapse of Rouble in 1998 gave opportunities to revive export.
The foreign trade in Karelia has a high level of concentration. Approximately 95% of
overall foreign trade turnover is formed by 55-60 Karelian companies.
Over 50% of the Republic’s export cost consist of wood products, including pulp & paper
products. It proves the primary importance of forest industry for external economic relations of
Karelia. During the last years there is a clear uptrend for timber export volumes share in overall
production volume. Today raw and processed timber export covers over 70% (in 1995 only 30%).
It shows that wood-harvesting and wood-working industries are mainly orientated to work with
foreign markets. In a way it helps timber and wood-working companies to survive the period of
crisis. However, this tendency leads to a high reliance on the world market conjuncture where
there has been an obvious 3-year period of sagging demand and reduction of prices for main
timber products which are the basis of Karelian export. The share of unprocessed timber export
in terms of cost in overall export volume tends to grow as compared with processed timber.
Balancing this tendency against the reduction of prices for unprocessed timber during the last
years, we may speak of extensive export growth for the named goods.
There is another noticeable negative tendency - increase of raw material export, in
particular in timber industry. The share of unprocessed timber in terms of cost in Karelia’s
overall export volume went up from 12.1% (1995) to 17.7% (1998).
A peculiarity of round wood export in Karelia is a big share of services rendered by
Finnish entrepreneurs, logging and exporting timber from Karelia. The number of them tends to
increase.
Thus, in 1996 their share was 11.4% of total import of services (10.2 million USD); in
1998 - 18.5% (9.7 million USD) and in the first half-year 1999 the share of import of wood
harvesting and logging services was 58.2% (4.98 million USD). The growth of import share of
logging service at the time when the overall volume of import of services declines represents the
fact that while the attractiveness of the Karelian market of services has been fading, the wood
harvesting and logging keeps up its attractiveness for foreigners. Therefore, today we may
presume that Karelia due to its common EU border has some particularities which originate from
the historically developed economies with different productivity level on both sides of the border,
different rent payments, taxes and expenditures. It creates differences in the structure of timber
price in Finland and Karelia and attracts Finnish manufacturers. These particularities are be
thoroughly examined.
The industries of the Karelian economy orientated on export operations, namely logging,
wood-working, pulp & paper, iron & non-ferrous metallurgy, industrial fishery, will be the
priorities for consideration, control and monitoring by the Government of Karelia. A special
attention will be paid to raw products with a low level of processing for they are the
products which involve export operations of low efficiency due to subjective reasons.
When defining objectives for foreign trade development, the Government proceeds from
the understanding that foreign trade activities are regulated by federal Law "On State Regulation
of Foreign Trade Activities". According to the Law the regulation function in respect of the
foreign trade belongs to the competence of Federal State Authorities. The Government RK shall
support and promote observance of basic foreign trade principles, namely: single economic and
customs area of Russia; single export control policy; single system of state regulation of foreign
trade activities.
Following the named principles, the Government believes that its role as concerns the
foreign trade development is not only to regulate but also to promote such development by co-
operating with specific Federal Authorities and supporting exporters in different ways, as well as
using other appropriate and available for the Government methods of influence and control over
the exporters and importers’ operations (forest resources, etc.). Export is considered the most
important part of the Republic’s foreign trade, a factor maintaining the economic potential of the
Republic, the most important source of budget receipts and an instrument of structural renovation
of the Republic’s economy.
The Government believes its main objective during the scheduled period is to develop
the Republic’s export basis and to increase the Karelian export efficiency. The wood-
working industry is deemed the primary industry of Karelia.
To work out the planned objectives the Government intends to take all actions and apply
all instruments being available and within its authority.
The Government will make best efforts to reduce number of logging and exporting timber
companies to a rational and reasonable minimum. This will allow to secure a proper export
control; to keep acceptable export prices and to support some groups of exporters. It is planned
the exporters’ business activities will be controlled by joint efforts of the North-west Customs
Department of the State Customs Committee of the Russian Federation, National Bank of Karelia,
System of Export Contracts Accounting and Examination, and other state agencies through co-
ordination of the activities and creating an information exchange system.
The objective is using such co-ordinated activities to find out exporters with inefficient
timber trading business and to influence them using available instruments of economic and
administrative regulation, currency and export control and natural resources allocation.
The Government will make efforts to establish conditions mainly by means of provision
of economic incentives, making enterprises interested in deep processing of raw materials and
export of value added products.
There will be taken measures to create new instruments to form export prices for timber.
We have to state that today there is practically no co-ordination of activities between the Karelia
exporters, Subjects of the Federation in North-west Russia. There is no system of carrying out
negotiations between Finnish customers - main customers for the Karelian wood - and the
Karelian and North-west representatives of exporters as concerns formation of mutually
acceptable prices and volumes for timber export. Such instruments of timber price and export
volume negotiations may help to achieve optimum efficiency of timber export. Therefore another
task of the Government is to promote an effective Timber Exporters’ Union that may carry on
such policy.
To avoid export operations of low efficiency, accumulation of currency returns abroad the
System of Export Trade Contracts Accounting and Examinations will be developed further both
by enlarging existing data bases and analysis and exchanging information with appropriate
Federal structure. This instrument will be the ground for the Government to make decisions on
relations with companies when licensing, allocating natural resources, providing state support, etc.
The Government makes and will make efforts to reduce export of unprocessed timber and
to increase export of sawn timber, paper and cellulose; to increase export returns by reducing
manufacturing costs and increasing industrial wood output, modernising processing and
marketing technologies. These actions will also increase returns to all budgets.
The Government will co-operate with the Ministry of Trade RF and Currency & Export
Control of Karelia to introduce gradually the quantity and quality expertise of timber in order to
increase export efficiency and to reduce losses caused by timber remeasuring by customers.
The Government aims at gradual reduction of import of logging and transportation
services rendered by foreign workers in Karelia. The measures will be taken to reduce wood
export under the so-called mixed contracts which are presently concluded to realise the
Republican Investment Programme. The principle is that Karelian workers should be the first to
get working places in Karelian forests. Besides, a reduction of imported services will increase
budget returns by taxes not paid by foreign loggers under international agreements on avoidance
of double taxation.
The Government will strengthen the co-ordination of its activities with Federal controlling
authorities (State Customs Committee RF; Currency & Export Control Department; Tax & Duty
Ministry of Russia, etc.) to control actual export of timber. This will include the export quantity &
quality expertise, improvement of methods and standards of timber volume measurements,
reduction of a number of unequipped cross-border stations, export contracts accounting and
examination.
The joint work of co-operation with exporters and exporters’ Unions to develop export and
the export potential will be carried out in several ways:
1) To improve the work with exporters as regards quality of export contracts, instruments of
obligatory fulfilment of contract obligations and terms of delivery by foreign partners. The task is
to prepare standard contract forms and contract requirements, depending of type of product and
also methodical references for exporters;
2) To target exporters at assortment enlargement and quality refinement of export timber
deliveries to meet current demands at the markets of Europe and the world. The Government
together with Exporters’ organizations will finance developments aimed at working out specific
references for exporters;
3) To develop economic and other incentives that invite to reinvest profit received from
export operations into export production development;
4) To support exporting companies of strategical importance for the Republic as concerns
their modernisation and renovation to deepen the wood processing. This involves the
Government’s guarantees and different credits and lobbying at the Federal level;
5) To support exporters in finding new markets for Karelian products.
The Government considers a continuation of dialogue through information and training seminars,
different business meetings and special exhibitions to be another important form of co-operation
between exporters and state authorities.
A co-ordination of the Karelia Executive and the Russian Executive, a development and
implementation of special purpose programmes, a co-operation with the Timber Exporters’ Union
and other organizations are the main instruments to realise the above objectives. Another
important instrument is the Expert & Consulting Committee on Wood Trading Policy under the
Government RK which was established by Resolution #522-P of the Chairman of the Government
RK of July 28th, 1999.
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