Six months ago I reported on negotiations to bring Eastern Europe's paper industries into the wider European community (PaperAge, Jan/Feb '03). The optimistic forecast for full membership is still May 2004. But these new and hopeful candidates carry a lot of baggage, left over from Russia's former Communist empire. The first signs of that baggage appeared a few weeks ago.
The 10 paper and board associations of Central and East Europe (CEEC 10) had agreed to join in membership talks in May, in Vienna. The talks had taken a lot of tough bargaining and deals were cut on all sides. CEPI had coordinated the business and Claes von Ungern-Sternberg, CEPI's Trade Director, headed negotiations (von Ungern-Sternberg is Finnish, with a Russian mother and is a director of the Finnish Forest Industries Federation). But a few days before the talks took place, the CEEC-10 said they weren't ready and, in effect, never showed up. CEPI is now negotiating for a November meeting.
Ungern-Sternberg is in two minds over the prospects of the new members—when they join! During my recent visit to Finland, he told this writer, "Enlargement of the European Union (EU) to Eastern Europe is, overall, a welcome development for the forest industry. As new countries join the EU, their standard of living will rise and demand for forest products will increase. The new members cannot produce the volumes necessary to meet demand in the next few years.
"Demand for all forest products is expected to grow in the new EU member countries, said. Consumption of paper may even triple if the volume in the new member countries reaches the present EU level. In the EU, paper consumption is about 200 kg per head. In the CEEC-10 the average is around 55 kg. In Bulgaria it's as low as 17kg."
"Will the EU's enlargement in Eastern Europe pose any threats to the forest industry? Paper and board mills in the CEEC-10 are struggling domestically, and will then face tough EU markets. How could they be a threat? We have nothing to worry about. In fact, eastward enlargement for the EU will mean new opportunities in the forest industry."
The Downside
While Ungern-Sternberg admits that growth rates in the east are dramatic, there are more than a few problems in the region. "I expect the region to be dominated by the current global top five: IP, StoraEnso, UPM-Kymmene, etc. The countries of the east have no capital, there is no forest industry policy; it simply is not a priority. In Scandinavia, in contrast, forest industries have a strategic role."
As negotiations, which began last fall, progressed, Ungern-Sternberg and his colleagues found that the CEEC-10 just wanted the money. "They all wanted state aid, but none of the countries can afford it so they're unlikely to get it," explained Ungern-Sternberg. "The EU club is a tough one. But as western investment in the region increases, the struggling paper and board industry will become a target of that investment; but on quite different terms to those of the Soviet era."
His team found that the workforce in the eastern mills was fine, but the management was not. Too many managers were time-serving bureaucrats of the ex-Soviet generation.
Will the integration of the CEEC-10 be a building block for Russian membership? Ungern-Sternberg doesn't think so. "Political-will overrides economic reality in that country at present. The EU will enjoy free trade with Russia, but Russia will never be a member of the EU. However, I do think that Finnish companies will, eventually, control the forest industry in northwest Russia. When that happens, Finland will no longer be considered as Russia's dwarf!"
This writer, in 1994, coordinated a publicity campaign to expose an attempt by Czech Communists to steal a filter-paper mill owned by George Mandl, a Czech-born British papermaker. The combination of the press publicity, and Mandl's willingness to use his money and the law, defeated the attempted theft. But other mills in the region were not so lucky, and many now operate under dubious ownership. In the mid-90s, Sweden's AssiDoman found its operations in Russia too dangerous once the Mafia moved in. It abandoned the operations.
So, will the November meeting take place? Ungern-Sternberg thinks so because the bankers are now interested, as is CEPI, along with the leading forest products companies. All that remains is to make sure there are enough incentives on the table to get the CEEC-10 members there.
