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Wood Processing Companies Rise to Fight for their Privileges

 „Ekonomika ir visuomenė/Business and Exhibitions“

Wood processing companies are ready to attack again – Lithuanian Parliament features a new project for changing and amending articles 1 and 7 of the Forestry Law; the essence of the amendment – a priority right for purchasing raw wood. Would the Committee on Environment Protection of Lithuanian Parliament and Lithuanian Parliament itself approve of this project? The journalist Rimantas Šlajus talked to Algimantas Salamakinas, the Chairman of the Committee.

"How much does this project comply with the provisions of the free market, competition and free movement of goods in the EU countries?"
"This is the most important question. Free movement of goods is compulsory in all the EU countries, thus when a similar law was adopted in Poland, the European court reacted very quickly. Poland was punished with a considerable fine of millions of euros. If I remember correctly, the Minster of Environment, the initiator of such legislation, was punished as well. By adopting such a law and thus violating the free trade directive we would risk being fined as well, and such fine could amount to 10-15 million litas."

 "And that money would be taken from the budget."
"Yes, of course, this burden would fall on the shoulders of our taxpayers. I believe that such cases should involve personal responsibility. I do not want to point any names, but some of the members of the Parliament think that local producers will manage to purchase everything they need long before the punishment from the Europe comes. And then we will have to pay from the budget, dreaming about money coming back through the purchase tax. However, in reality the fine would be at least ten times larger."

"Sometimes states provide short-term support for their vital branches by protecting them using taxes, certain duties for imported goods or other privileges, although the majority of the famous economists generally oppose such fiscal measures. Meanwhile in Lithuania we would use a law to protect a large industrial group, although there is no serious basis to support it by discriminating other participants of the market."
"I agree to using tax incentives for promoting new businesses (with no violations of the directives). But this case is a mere attempt to make a loophole in the law. As we all know, timber is sold at the exchange. How, according to the new amendments to the law, would such a business operate in practice? Let us say, that I am a seller and someone comes to me to buy some wood. Let us say, a cubic metre of wood costs 200 litas. You come first and say "No, this price is too high. The legislator gave us the right to buy first and so we want to pay 100 litas for a cubic metre." And before I sell the wood they want, I cannot sell any wood for anyone else. What next? There were some wiseacres that offered to compensate the price difference from the budget. But what boots it if we start subsidising forest directorates or drown them in debt? We will end up bankrupt. Therefore I, as a the Chairman of the Committee, do not rush with this law, I believe that it might cause trouble."

"And the forest directorates will collect less taxes?"
"I am not speaking about wood export to China. The export to China is decreasing and currently amounts to only about 1,5% of the total wood grown in the state forests. However, there are companies that buy and export wood, let us say, to Latvia, Poland and other foreign countries. They employ quite large numbers of people, use transport and also pay taxes. And those taxes constitute quite large sums of money. I will never agree that the local citizen that produces planks and later exports them abroad, contributes to the budget more than the one simply selling raw wood. There is very little difference. I had met furniture producers here in my office. They complain that wood is expensive. Then I tell them, imagine, a German comes to Lithuania, buys birchwood for furniture, takes it to Germany, dries it, produces furniture, pays wages of 2 000-3 000 euros for his employees, brings the furniture here, to Lithuania, and sells it. So what are you complaining about? You buy the wood, you do not experience high transportation costs, you pay about 1 500 litas for your employees and you still cannot sell your furniture? But the German somehow manages to do that. After taking all the trouble of transportation. There were no counter-arguments from the other side after that. Perhaps there is a hidden desire to seek for more profit. Excuse me, but as a politician and the Chairman of the Committee, I cannot destroy a certain business system in order to increase profit for another sector. I will definitely not allow it. It is only natural to want to earn as much as possible, but we must think about the entire economy of the country as a functional phenomenon."

"It seems that the large wood processors clam that there is a shortage of wood."
"When I had just started analysing this issue, my initial question was whether there is enough of raw material. Benjaminas Sakalauskas, the Director of the Directorate General of State Forests has officially answered that the exchange is left with about 5-10% of unsold wood. Moreover, the forest directorates can increase logging by 5%. They offer to sell as much as 60% of the sold amount through long-term contracts in order to avoid problems in sourcing wood. Pricing is another issue. I have been told that the prices in Lithuania are too high. We have ordered a parliamentary inquiry and it appears that the price of wood in our country is one of the lowest among the neighbouring states. Of course, the prices do fluctuate, but still remain lower by 10-15 litas per cube. Therefore, this argument is invalid as well. I have tried talking to businessmen that engage in wood pellet production and heating, exporting as much as 95% of their production to Norway and Sweden. I asked them, whether the amount of wood is sufficient, perhaps there is a shortage, and they neither indicated a shortage nor asked for a priority right to purchase wood. They explained that they are satisfied with the work of the exchange and everything is fine. So, I do not get it, why is it necessary to change the law in the first place."

"It seems that the new provisions of the law also restrict competition in the wood market for small businesses, putting them into a more difficult economic situation."
"Not only the small businesses. The new participants of the market are put into a difficult situation as well. After all, the law includes a great number of players. For example, biofuel, wood chips, produced in large quantities by such companies as Bionova. What about them? Or should the opportunities to purchase wood before everyone else be provided only for the large monopolies? How would the businesses owning only some wood chip producing equipment survive then?

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© Directorate General of State Forests Solution: Infoluitai