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Cablegate: Nigeria: Eu Economic Partnership Agreement Raises Concerns

VZCZCXRO1006
RR RUEHMA RUEHPA
DE RUEHOS #0212/01 1690650
ZNR UUUUU ZZH
R 170650Z JUN 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 9948
INFO RUEHUJA/AMEMBASSY ABUJA 9653
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 03 LAGOS 000212

SIPDIS

COMMERCE FOR KBURRESS
TREASURY FOR DPETERS, RHALL, RABDULRAZAK
STATE PASS USTR FOR LISER, AGAMA
STATE PASS OPIC FOR ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR EEBONG, DSHUSTER
STATE PASS EXIM FOR JRICHTER
STATE PASS USAID FOR NFREEMAN, GBERTOLIN
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS
USDOC FOR USPTO - PAUL SALMON
USDOJ FOR MARIE-FLORE KOUAME

E.O. 12958: N/A
TAGS: ETRD EFIN EINV PGOV NI

SUBJECT: NIGERIA: EU ECONOMIC PARTNERSHIP AGREEMENT RAISES CONCERNS

1. (U) Summary: The Manufacturers Association of Nigeria (MAN) and
the Nigerian Economic Summit Group (NESG) held a seminar May 15-16
to determine under what conditions Nigeria might sign the European
Union's (EU) Economic Partnership Agreement (EPA). Manufacturers
contend that high overhead costs, resulting from failing power and
transportation infrastructures, make them uncompetitive globally.
They complain the EPA, which would lower tariffs on EU imports to
Nigeria, would only exacerbate their problems. Stakeholders
suggested the institution of a regional EPA fund might make the EPA
more acceptable to Nigeria. End Summary.

Manufacturers, NESG Scrutinize EPA
----------------------------------

2. (U) On May 15-16, the Manufacturers Association of Nigeria (MAN),
the Nigerian Economic Summit Group (NESG), and the UK Department for
International Development (DFID) organized a stakeholders' forum to
deepen the private sector's knowledge of the Economic Partnership
Agreement (EPA) proposed by the European Union (EU). MAN President
Bashir Borodo said the forum was intended to give the private sector
the opportunity to better articulate its position and to contribute
to the formulation of a development-oriented EPA.

EPA Stalemate Hurts Exporters
-----------------------------

3. (U) In June 2000, the EU and 77 African, Caribbean and Pacific
(ACP) countries signed a Partnership Agreement in Cotonou to promote
trade cooperation. To effectuate the agreement, the EU proposed an
Economic Partnership Agreement (EPA). Despite the EU's hope for a
conclusion of the negotiations by December 2007, talks dragged on
largely because of West African reservations about the EPA's impact
on regional development. The stalemate resulted in a return to the
Generalized System of Preferences (GSP) on January 1, 2008, and the
imposition of tariffs on some export items from Nigeria, Ivory Coast
and Ghana. (Note: Under the Cotonou Agreement, the GSP was suspended
during the EPA's negotiation process, and the EU and ACP countries
agreed to maintain the Lom preferential system, which granted the
latter unilateral preferential access to the EU market without
reciprocation requirements, until the end of 2007. Under the Lom
system, ACP exporters had substantial access to EU markets, and ACP
countries retained the ability to protect their producers from
highly competitive EU exporters. When the Lom IV Convention
expired in 2001, the EU requested for a World Trade Organization
waiver under the Cotonou Agreement for the extension of unilateral
preferences for ACP countries to continue until the originally
intended deadline of December 2007. End Note) Subsequently, Ivory
Coast and Ghana opted to conclude single country interim agreements
with the EU in December 2007. Nigeria, emboldened by revenues from
high oil prices, preferred to wait until a regional EPA could be
agreed upon; this caused an outcry from Nigerian export-oriented
companies.

4. (U) With already high overhead costs resulting from failing
transport and power infrastructure, the higher tariffs pursuant to
the EPA stalemate have added to the Nigerian manufacturers' costs,
making their efforts even less competitive than those of their West
African counterparts. The Cocoa Processors Association of Nigeria
(COPAN) decried the EPA stalemate and claimed that higher tariffs
have led to as much as a 20 percent production cut. COPAN said its
members have lost 30,000 naira (USD 250) on every ton of cocoa
exported to the EU from Nigeria since January 2008, which amounted
to an industry-wide loss of about 585 million naira (USD 4.9
million) in the first quarter of 2008 alone.

Zero Tariffs: Hurt Manufacturers and Macroeconomy
--------------------------------------------- ----

5. (U) Nigerian manufacturers claim the elimination of duties and
trade restrictive measures on at least 80 percent of goods from the
EU, as proposed in the EPA, would kill Nigerian industries. Ken
Ukaoha, President of the National Association of Nigerian Traders
and member of the ECOWAS EPA negotiating team, also contended that
placing zero tariffs on goods entering Nigeria from the EU will

LAGOS 00000212 002 OF 003


result in a huge loss of tariff income for the Government of Nigeria
(GON) and an unrestricted influx of goods into an already flooded
market. Ukaoha believes this will have macroeconomic consequences
ranging from a hike in interest, exchange and inflation rates to a
surge in unemployment.

Few Exports, Little Benefit to Nigeria from EPA
--------------------------------------------- --

6. (U) Nigeria and other West African countries manufacture too few
goods to take advantage of the zero tariffs on their exports to the
EU under the EPA, shareholders claimed. The EPA proposes that 100 of
ECOWAS goods could enter the EU duty free while only 80 percent of
EU goods could enter ECOWAS duty free. Even with this asymmetric
market access arrangement, Ukaoha believes the EU would derive more
benefit from the partnership than the ECOWAS countries. Unrestricted
market access is more beneficial for the EU because it has more
finished goods to export to ECOWAS countries where demand for such
goods is already high, he said.

EPA Could Cause MNC Factories to Close
--------------------------------------

7. (U) Dr. Aremu, CEO of Market Link Consults, stressed that most
multinational corporations (MNCs) established a physical presence in
Nigeria to avoid paying the Government of Nigeria (GON) high tariffs
on their goods. The zero tariff provision in the EPA, if
implemented, would obviate the need for European MNCs to locate in
Nigeria. Aremu predicted some MNCs may even be compelled to close
down their existing West African factories, a move that would result
in massive job losses.

EPA Could Increase Smuggling into Nigeria
-----------------------------------------

8. (U) A representative of the Nigerian Customs Service said the
single country interim agreements between the EU and Ghana and Ivory
Coast, which are expected to be signed in June 2008, could lead to
an increase in the smuggling of zero tariff EU goods into Nigeria
from these countries. Should other West African countries sign the
EPA without Nigeria, smuggling activities and the dumping of goods
might increase even more, he forewarned.

Regional EPA Fund Could Promote EPA
------------------------------------------

9. (U) Chibuzon Nwoke of the Nigerian Institute of International
Affairs (NIIA) said the onus is on the EU to improve benefits for
ECOWAS countries under the EPA since they are the junior partner in
the arrangement. He stressed the need to shift the EPA's focus from
trade-for-trade to trade-for-development. He advocated the
inclusion of initiatives that would help reduce poverty, promote the
sustainable development of West African countries, and facilitate
their gradual integration into world trade. The implementation of a
fund to support export development and compensate West African
countries' for the loss of tariff revenue, employment, and
production arising from adoption of the EPA would improve the EPA's
chance at success, Nwoke said.

West Africa Should Use EPA to Guide Development
--------------------------------------------- --

10. (U) Professor Mike Kwanashie of the University of Zaria implored
Nigeria and ECOWAS to use the EPA as a roadmap to develop and become
more competitive in global trade. Governments should study the
EPA's impact on each sector of their economies and assess the
available local capacity in those sectors before deciding on the
extent of openness to offer the EU, he urged.

11. (U) Comment: Because Nigerian companies are not internationally
competitive, Nigerian manufacturers are concerned that dropping
tariffs would hurt them, a familiar refrain as well in US-Nigeria
negotiations on tariff reductions and import bans. End comment.


LAGOS 00000212 003 OF 003


12. (U) This cable has been cleared by Embassy Abuja.

Hudson

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