Russian President Dmitri Medvedev on June 30 accepted Finnish President Tarja Halonen's invitation to visit Finland in the near future. Medvedev did not, however, budge on a proposed Russian timber export tariff increase — a move Finland says will wreck its paper and pulp industry. Finland has suggested that in response it might impose a tariff on goods transshipped to Russia through its territory, which account for a significant chunk of Russian imports. This row could set Russia and Finland on a collision course, dragging EU-Russian relations down as well. Former Russian President Vladimir Putin imposed the timber tariff to force Scandinavian paper and pulp producers to move their production into Russia. Russia is the world’s largest exporter of cut logs, but is not a significant producer of pulp and paper. Developing such an industry would be a great economic boon for northwestern Russia. Russia announced in July 2007 that the tariff would be raised from $7 to $15 per cubic meter, with an increase to $75 set to take effect before the end of 2008. Finnish papermakers buy more than 10 million cubic meters of timber a year from Russia, and the new tariffs have cost the industry more than $785 million. The industry accounts for more than 10 percent of the gross domestic product of Finland, which produces more than 15 percent of the world’s paper. Unlike most of Russia’s relationships with its European neighbors, Russia and Finland have a long history of mutual, if grudging, respect forged through episodes of bitter rivalry. Finland endured 105 years of Russian rule and fought a brutal war at the beginning of World War II to stave off a Russian invasion. Russia suffered enormous causalities in the Russo-Finnish, or Winter War, while Finland lost 9 percent of its territory — including its then-second-largest city, Viipuri (now the Russian city of Vyborg) — in the subsequent peace treaty. This shared history of conflict resulted in a special relationship during the Cold War, marked by Russian acceptance that an independent Finland was there to stay and that tackling the resilient Finns is a hazardous prospect. In turn, Finland learned the extent of Russian power, and thus how to avoid rousing the Russian Bear: remain neutral. Finland never joined NATO, and since it joined the European Union in 1995, it has often sought to elevate itself to the position of main Russia-EU negotiator. Compared to the relations Russia has with Poland or the Baltics, Russo-Finnish relations appear rosy. This situation might change, however, if Moscow goes through with the $75 per cubic meter timber export tariff. The paper and pulp industry is Finland’s lifeblood, with Russian timber supplying 80 percent of its imports. If the tariff stays, Finnish paper and pulp producers will be forced to start shutting down plants, potentially costing the Finns as many as 16,000 jobs. Finland does not have any cost-effective alternatives to Russian timber, including its own forests, which the Finns are unwilling to cut. The Russian tariff therefore represents a serious threat to the Finnish industry and economy. One retaliatory move proposed by Finland is to impose a special transit fee for Russia-bound freight transiting Finland. Finland exports nearly $10 billion a year of goods to Russia, but the real damage would be done to the re-exported goods shipped to Finnish ports but ultimately bound for Russian destinations via the road network connecting the two countries. Proceeds from the transit fee would be used to compensate for losses in the paper industry. Because of this re-export trade, Finland is a large a trading partner with Russia. Everything from pharmaceuticals and chemical goods to cars and mobile phones arrives in Finland for re-export. This trade was estimated at $25 billion in 2006, constituting a quarter of all goods imported into Russia. The proposed transit fee would also hurt Russian freight companies, which conduct most of the re-exporting trade. A transit fee imposed on a quarter of all Russian imports would thus represent a serious escalation of the two countries' dispute, and it could hurt the Russian economy by driving up its already high inflation. Finland can also follow up its transit fee with a diplomatic offensive, disrupting Russia's application to join the World Trade Organization and vetoing any bilateral treaty developed through EU-Russia summits. On June 27-29, Russia and the European Union held their first cordial summit since the previous two were disrupted by a tense trade dispute over a ban on Polish meat and due to Kosovar independence. The first real round of negotiations is set to start July 4, and Finland could scuttle this round by demanding that the timber tariff be resolved before any deal with Moscow is reached. This would put the European Union in the difficult position of siding with Finland or favoring Russia, a dilemma complicated by the fact that any transit fee would be illegal under EU law. A Russo-Finnish dispute easily could grow into a Europe-wide dispute, potentially souring Moscow’s willingness to deal with the European Union as a bloc. At the last EU-Russian summit, the Russians already were proposing that any treaty reached should be relatively vague and noncommittal, whereas the Europeans were pushing for a detailed bilateral agreement outlining everything from energy and trade to security cooperation and promotion of democracy in Russia. The timber tariff dispute might give Russia the excuse to conduct relations with the EU bloc on a country-by-country basis, a much more favorable position for Moscow.