Adoption of the law on the timber market, allowing the export of unprocessed timber and sawn timber from Ukraine, is forecasted until the end of this year, its entry into force does not pose significant threats to the country’s forest resources and related businesses, Head of the State Forest Resources Agency of Ukraine Yuriy Bolokhovets has said in an exclusive interview with Interfax-Ukraine.
“I predict that the law on the timber market will be adopted by the end of the year. I do not see any major threats either from the point of view of preserving the forest fund, or from the point of view of protecting and supporting Ukrainian business. We are already working at European prices, there are precedents for the import of raw materials from the EU countries. Therefore, we do not expect rush demand from exporters or foreign players,” the head of the agency said.
According to him, the Ukrainian timber market was interesting for foreign players, while significant volumes of cheap illegally logged timber were present there, but those times have already passed.
Bolokhovets also said that due to the possible lifting of the moratorium on the export of unprocessed timber, Ukrainian processors should think about developing their business and strengthening competitiveness.
“Today, the majority is engaged in trivial sawing of timber. It is necessary to deepen processing, increase the added value of products,” the head of the State Forest Resources Agency said.
Ukrainian woodworkers have proposed that 50% of unprocessed timber is sold at electronic auctions and 50% is sold under long-term contracts on the term of the offer, aiming at stable development of forestry and support of deep processing of wood.
The concept, proposed for amending a bill on the wood market, was announced by Director General of Kronospan Ukraine LLC Natalia Pokinska at a press conference organized by the InvestRivne agency in Kyiv on Thursday.
According to her, industry representatives are proposing a “cascade” principle of holding auctions on electronic platforms, i.e. they can be of four types: basic, additional, repeated and additional repeated.
At the same time, the participants in the main auctions should be woodworking enterprises that have submitted a declaration on the relevant activity and are included in the register of wood processing entities, and the participants in the additional ones – buyers of wood for needs not related to processing and production of products from it, as well as manufacturers of wood chips and companies that use timber as an alternative source of energy, biofuel producers and nonresidents.
“If we compare an entity that buys raw materials for the production of chipboard and a buyer for biofuel production, they are also in different categories for government support, since the energy industry provides for certain subsidies, and such buyers can pay more for raw materials and compete with the real sector which deeply processes wood,” Pokinska said.
Regarding the conclusion of contracts for the sale of timber on the term of the offer, industry representatives also propose to conduct them on a transparent electronic platform (“forest portal”), and publish the results automatically after the offer was approved to avoid accusations of non-transparency or behind-the-scenes of the process.
“We have analyzed the laws of other states, EU directives, and we can say that such a cascade is a guarantee of deeper processing of raw materials with high added value,” the director general of the company said.
Illegal timber trade in Ukraine is about 30% of the legal, or UAH 5 billion per year, Minister of Environmental Protection and Natural Resources Roman Abramovsky has said.
“This is a lot of money that can be used for forest management, fire-prevention measures, including replacing the species in the composition of forests,” Abramovsky said in an interview with Interfax-Ukraine.
According to him, in order to comprehensively solve forestry problems, the ministry is working on a strategy for managing Ukrainian forests until 2035, which, in particular, provides for the separation of economic and regulatory functions of the State Forest Resources Agency of Ukraine.
“Everything is kept in one body. There is a conflict of interests, corruption risks. Therefore, part of the economic functions must be given to a separate entity or business entities,” the minister said. He said that it could be one company or a concern with regional units.
The minister also expressed support for the development of electronic auctions for the sale of timber, its certification and traceability “from forest to product.”
In his opinion, it is necessary to provide for the possibility of auctioning both large lots for large woodworking enterprises and small lots for local producers, which today, according to him, “actually depend on the mood of the director of the forestry enterprise.”
At the same time, Abramovsky said that the issue of motivating the heads of forestry enterprises to boost profits remains important.
“Now the payments of a part of the net profit to the state budget are at the level of 90%. This simply depletes funds of enterprises. We will make proposals on this matter that the share of net profit should be 30%, since even in the current state the forestry industry pays UAH 6 billion in taxes, in fact receiving nothing from the state,” Abramovsky said.
The European Commission awaits a final decision on the dispute between Ukraine and the EU on a temporary ban on export of round timber until the end of this year, as follows from the EU’s annual Association Implementation Report.
“Recent draft legal proposals which would introduce local content requirements in public procurement procedures are a cause of concern as they breach the equal treatment and non-discrimination principles of public procurement under the AA, the WTO and the WTO Agreement on Government Procurement,” the report says.
“Regarding trade defense activities, the recent proliferation of safeguard investigations launched by Ukraine have not always been carried out in strict adherence with criteria and standards,” according to the document.
“Following many years of uninterrupted growth favored by the Deep and Comprehensive Free Trade Area (DCFTA) established by the AA, bilateral trade in the first eight months of 2020 compared to the same period in 2019 decreased by around 11% as a consequence of the COVID-19 pandemic. The EU remains by far Ukraine’s biggest trading partner. Regarding Ukraine’s wood export ban, a longstanding bilateral trade-irritant, a bilateral arbitration panel under the AA has been established and a final ruling of the panel is expected still in 2020,” the EC said.
“With regard to the reform of the Ukrainian forest-based sector, including wood harvesting and trade and, in particular, wood legality, Ukraine authorities from the Ministry of Environment Protection and Natural Resources committed during a TSD (Trade and Sustainable Development) sub-committee meeting in October 2020, to the need for a separation of functions between the management of resources and control functions and thus a reorganization and distribution of responsibilities between control and inspection on the one hand, and wood harvesting and trade on the other,” the report states.
The European Union is ready to begin commercial arbitration with Ukraine to lift a moratorium on exports of round timber as the one violating the Ukraine-EU Association Agreement, Deputy Prime Minister for European and Euro-Atlantic Integration Ivanna Klympush-Tsintsadze has said. “Unfortunately, Ukraine really violates the Association Agreement with the introduction of the moratorium on round timber exports. This obligation will be considered as part of commercial arbitration. And the European Union is ready to start this arbitration between Ukraine and the EU,” she said at a briefing in Kyiv. According to the official, the lifting of the moratorium is excluded from the list of conditions for provision of macro-financial assistance by the European Union.
Speaking about the implementation of other provisions of the macro-financial assistance, in particular, the launch of automatic verification of electronic declarations of politicians and officials, the deputy premier said that coordination between various departments is underway to soon come to full ability to conduct automatic checks.
“The only problem that I see at the moment so that this system could work is changes in the legislation. The draft law from the government has been considered by the Verkhovna Rada for a very long time, maybe more than a year, the bill that regulates the automatic connection of the NACP (the National Agency on Corruption Prevention) to different registers,” she added.
Almost all groups of Ukrainian-made commodities demonstrated the growth of exports in the first quarter of 2018 year-over-year, however, exports of timber and paper grew most (by 39%, or $140 million), the Economic Development and Trade Ministry said on its website. “The EU remains the largest trading partner of Ukraine. Exports of goods to the EU during the first quarter of 2018 amounted to $5.07 billion, its share was 44.4% in the total exports of goods from the country,” the ministry said.
Exports of chemicals and related products for the period increased by 29%, or $134 million, those of light industry products grew by 23% ($58 million), metal by 23% ($558 million).
Farm produce and processed food accounted for the largest share of Ukrainian exports (38%), while the share of metallurgy was 26%, that of machine building was 11%, and mineral products 9%, the ministry said.
As reported, in January-March 2018, exports of goods from Ukraine increased by 10.3% year-over-year, to $11.435 billion, while imports grew by 13.2%, to $ 12.636 billion.