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Cablegate: Nigeria: 2003 National Trade Estimate Draft

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 ABUJA 003358

SIPDIS


STATE FOR EB/TPP/MTA/MST AND AF/W
STATE PASS USTR FOR GBLUE AND PCOLEMAN
STATE PASS DEPARTMENT OF ENERGY


E.O. 12958: N/A
TAGS: ETRD ECON EINV EFIN NI
SUBJECT: NIGERIA: 2003 NATIONAL TRADE ESTIMATE DRAFT

REF: STATE 225281


1. Following is Post's draft of the 2003 National Trade
Estimate for Nigeria. Dept. is requested to provide end-year
trade and investment data in the trade summary.


2.
NIGERIA


TRADE SUMMARY
In 2002, the U.S. trade deficit with Nigeria was $X.X
billion, an improvement over the 2001 deficit of $X.X
billion. U.S. goods exports to Nigeria were $XXX million in
2002, an increase of XX.X percent from 2001. U.S. goods
imports from Nigeria were $X.X billion in 2002, a decrease of
almost XX.X percent from 2001. Nigeria was the United States'
XXth largest export market in 2002.


In 2001, the stock of U.S. foreign direct investment in
Nigeria was $X.X billion, an increase of about XX percent
from 2000.


IMPORT POLICIES
Tariffs
Tariffs provide the Nigerian government with its second
largest source of revenue after oil exports. In its last
major tariff revision in March 2002, the Nigerian government
cut duties on 123 tariff line items (mostly raw materials and
capital equipment) to as low as 2.5 percent, while raising
them on 62 line items (largely finished goods and
agricultural commodities) to as high as 100 percent. The
government announced similar cuts and increases--often on the
same good from year-to-year--in 2000 and 2001. The government
will likely announce another round of tariff adjustments as
part of the 2003 budget process.


The arbitrary nature of Nigeria's tariffs and uneven
collection of duties help make the import process difficult
and expensive and create a severe bottleneck for commercial
activities. The problem affects foreign investors, as well,
and is aggravated by Nigeria's high-level of dependence on
imported goods, both finished products and raw materials.
High duties create the incentive to avoid tariff payments.
Common illicit practices include under-invoicing imports,
"round-tripping" foreign exchange, and smuggling. The gap
between the official exchange rate for the naira (used for
most imports) and the parallel market's discounted rate
(between 5 and 20 percent during most of 2002, at 10 percent
by year's end) accentuates the demand for foreign exchange
and encourages corrupt practices that are difficult to
eliminate. In general, most leading Nigerian importers of
high tariff items successfully avoid payment of full tariffs.


Non-tariff trade barriers
Nigeria appears not to be fully compliant with its WTO
obligations because of implementation of new non-tariff trade
barriers. In 2002, the Nigerian Government imposed new
non-tariff trade barriers on a number of goods, reversing a
trend over recent years to eliminate such barriers. In March
2002, the government banned the import of vehicles over five
years old; it also banned used refrigerators, air
conditioners, and compressors. Textiles containing
"hazardous chemicals such as chlorides" were banned early in
2002, and in September 2002, the government banned all
imports of printed textiles sold in Nigeria as "African
Prints." In August 2002 bans were placed on the import of
sorghum, millet, wheat flour, cassava, frozen poultry, and
vegetable oil in. Bans on imports of kaolin, gypsum, mosquito
repellent coils, used clothing, and bagged cement also remain
in effect.


Customs barriers
Nigeria's ports continue to be a major obstacle to imports.
Importers face long clearance procedures, corruption, high
berthing and unloading costs, and uncertain application of
customs regulations. In 2001, the Nigeria Customs Service
(NCS) began a 100 percent inspection regime at Nigerian ports
to reduce smuggling and under-valuation of imports. The NCS
continues to operate a pre-shipment inspection regime, in
which contracted shipping inspection companies at the port of
origin issue inspection reports that their counterparts in
Nigeria use to create a Clean Report of Inspection for NCS,
which lists the items shipped, their value, and applicable
customs duties.


The NCS planned to launch a 100 percent destination
inspection regime in 2002. Under that regime, the NCS would
act as the sole entity conducting valuation at Nigerian ports
of destination. Introduction was delayed after protests from
importers who feared that without a pre-shipment inspection
report NCS officials might use the new authority to extract
additional unauthorized facilitation fees. NCS risk
assessment and other databases are not yet fully operational,
another reason for delay.


STANDARDS, TESTING, LABELING, AND CERTIFICATION
The combination of high import duties and uneven application
of import and labeling regulations makes legal importation of
high-value perishable products problematic. Disputes among
Nigerian agencies over the interpretation of regulations
often cause import delays. The frequent changes in customs
guidelines help slow the movement of goods through the port
of Lagos, resulting in product deterioration and significant
losses for importers of perishables.
The National Agency for Food and Drug Administration and
Control (NAFDAC), which is charged with protecting the
Nigerian consumer from fraudulent or unhealthy products, has
targeted for special attention the illicit importation of
counterfeit and expired pharmaceuticals, particularly from
the Far East and South Asia. However, NAFDAC has also on
occasion challenged legitimate, processed food imports,
including those from U.S. exporters. NAFDAC's severely
limited institutional capacity to carry out inspection and
testing contributes to an occasionally heavy-handed or
arbitrary approach in regulatory enforcement.


Not only do products enter Nigeria without full payment of
tariffs, many imports do not fulfill the country's health,
labeling, and sanitary standards. Nigeria's rules concerning
labeling, testing, and sanitary and phytosanitary standards
are relatively well defined. Regardless of origin, all food,
drug, cosmetic, and pesticide imports must be accompanied by
a certificate of analysis from the manufacturer and
appropriate national authority. Specified animal products,
plants, seeds, and soils must possess sanitation
certificates. U.S. exporters may obtain these certificates
from the U.S. Department of Agriculture. By law, items
entering Nigeria must be labeled exclusively in the metric
system; products with dual or multi-markings will be refused
entry. However, products not meeting these criteria can be
found throughout Nigeria's markets. While U.S. products do
not appear to be subject to extraordinary restrictions or
regulations, the widespread use of fraudulent documentation
by non-U.S. exporters can prejudice the access for U.S.
exporters. When the level of illicit, undocumented imports
for particular products such as frozen chicken exceed that of
legal imports, meeting stipulated Nigerian standards does not
necessarily ease access to the Nigerian market.


GOVERNMENT PROCUREMENT
The Obasanjo Administration has made modest progress on its
pledge to practice open and competitive bidding and
contracting for government procurement and privatization. The
Nigerian Government has succeeded in reducing the most
blatant forms of corruption, but it has been less successful
in eradicating back-room maneuvers that bias decisions.
Particularly in the initial stages of the tendering process,
the Nigerian Government has demonstrated transparency,
even-handedness, and, at times, even excessive meticulousness
in weighing competitive bids. However, as tenders proceed
through the decision-making system, the process often becomes
more opaque. Allegations by unsuccessful bidders of corrupt
behavior by senior government officials and foreign companies
are common.


In January 2001, the Government issued new procurement and
government contract policy guidelines. The guidelines
clarify competitive tendering and decision-making procedures,
define bid security and mobilization fee rules, and provide
for audits of capital projects. However, it is alleged that
to avoid this due diligence process some government agencies
are tendering contracts the value of which is smaller than
the threshold amount of one million naira (about $7,700).
Foreign companies incorporated in Nigeria receive national
treatment, and government tenders are published in local
newspapers. According to Nigerian Government sources,
approximately five percent of all government procurement has
been awarded to U.S. companies.


EXPORT SUBSIDIES
The Nigerian Export Promotion Council (NEPC) and the Nigerian
Export-Import Bank (NEXIM) administer incentive programs for
industrial exports that include a duty drawback program, an
export development fund, tax relief, a capital assets
depreciation allowance, and a foreign currency retention
program. However, funding constraints limit the effectiveness
of these programs. In addition, only favored individuals and
businesses allegedly have derived any benefit from them.
Aside from these limited incentive programs, Nigeria's
non-oil export sector firms do not receive subsidies or other
significant support from the government. Recognizing that
Nigerian exporters were penalized by the official exchange
rate, in late 2001 the government agreed to permit exporters
to repatriate their earnings at an exchange rate slightly
higher than the official rate, but lower than the parallel
market rate. Nigeria imposes on foreign oil companies some of
the stiffest restrictions and fee structures of any in effect
in the oil producing countries in the world.


In an effort to attract investment in export-oriented
industries, the Nigerian Government established the Nigerian
Export Processing Zone Authority (NEPZA) in 1992. Of five
zones established under NEPZA, only the Calabar and Bonny
Island (Onne) Export Processing Zones function. NEPZA rules
dictate that at least 75 percent of production in the zones
must be exported, although lower export levels are reportedly
being tolerated. In 2001, the Government converted the
Calabar Export Processing Zone into a free trade zone; it is
unclear whether the new designation will help to improve its
export performance.


In March 2002, the Ministry of Finance established export
incentives for agricultural cash crops. Cocoa, groundnuts,
rubber, cotton, palm oil, gum arabic, and ginger are eligible
for a five-percent export expansion grant. This program was
not operational as of January 2003.


INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
Nigeria is a member of the World Intellectual Property
Organization (WIPO) and a signatory to the Universal
Copyright Convention (UCC), the Berne Convention, and the
Paris Convention (Lisbon Text). Legislation pending in the
National Assembly would establish the legal framework for a
TRIPS compliant IPR system in Nigeria. However, IPR law in
force does, in principal, afford rightholders a degree of
protection in compliance with most TRIPS provisions.


Following the advent of democracy in 1999, Nigerian
artists--including writers, filmmaker, and musicians--have
mounted a campaign calling for more effective copyright
protection and amendment to existing law. Lawyers active in
IPR issues formed the Industrial Property Law Interest Group
(IPLIG) to educate the public and lobby on behalf of
industrial IPR issues. IPLIG has sponsored several copyright
conferences and initiated an IPR course at the Lagos Law
School. Software company representatives continue to work
directly with the Nigerian Government to reduce the number of
agencies using pirated software. Nigerian filmmakers formed
the Proteus Entertainment Agency to challenge copyright
infringement and promote stronger copyright laws and law
enforcement.


Despite Nigeria's active participation in these conventions,
its reasonably comprehensive domestic IPR laws, and growing
interest among individuals in seeing their intellectual
property protected, piracy is rampant. Counterfeit
pharmaceuticals, business and entertainment software, and
music and video recordings, and other consumer goods are sold
openly throughout the country.


The government's lack of institutional capacity to address
IPR issues is a major constraint to enforcing IPR. The key
Nigerian institutions suffer from low morale, poor training,
and limited resources. Neither the Trademarks Office in the
Ministry of Commerce nor the National Agency for Food and
Drug Administration and Control, two agencies responsible for
significant IPR protection, are computerized. Fraudulent
alteration of IPR documentation is reportedly common, even in
government offices.


Law enforcement, particularly for patents and trademarks,
remains weak, and the judicial process is slow and subject to
corruption. Companies rarely seek trademark or patent
protection because they generally perceive it as ineffective.
Nonetheless, recent government efforts to curtail IPR abuse
have yielded some results. A number of high profile actions
have been taken against IPR violators. The Nigerian Police,
working closely with the Nigerian Copyright Commission (NCC),
has occasionally raided enterprises allegedly producing and
selling pirated software and videos. However, most raids
appear to be conducted against small pirates, not large and
well-connected ones. Moreover, very few cases involving
copyright, patent, or trademark infringement have been
successfully prosecuted, and most cases have been settled out
of court, if any final resolution occurs at all.


Nigeria's broadcast regulations do not permit re-broadcasting
or excerpting foreign programs unless the station has an
affiliate relationship with the foreign broadcaster. This
regulation is generally respected. Some cable providers do
illicitly transmit foreign programs, however. The National
Broadcasting Commission (NBC) monitors the industry and is
responsible for punishing infractions.


IPR problems in Nigeria's film industry worsened dramatically
following the government's 1981 nationalization of the
country's filmmaking and distribution enterprises, part of
its campaign to "indigenize" the economy. The legitimate film
distribution market has yet to recover. Almost no feature
films have been distributed in the country in two decades,
and the widespread pirating of foreign and domestic videos
appears to have discouraged the entry of licensed
distributors in this medium as well.


SERVICES BARRIERS
Foreign participation in the services sectors is generally
not restricted, and regulations provide 100 percent access to
service sectors including banking, insurance, and securities.
Central Bank of Nigeria (CBN) directives stipulate minimum
levels of paid-in capital. At least two foreign banks have
initiated operations in Nigeria in recent years and other
Nigerian banks have received infusions of foreign capital.
Professional bodies in engineering, accounting, medicine and
law define the minimum personal qualifications required for
participation. Nigeria does not impose limits on expatriate
employment, except in the oil and gas sector.


INVESTMENT BARRIERS
Under the Nigerian Investment Promotion Commission (NIPC)
Decree of 1995, Nigeria allows 100 percent foreign ownership
of firms outside the petroleum sector. Investment in the
petroleum sector is limited to existing joint ventures or
production-sharing agreements. Foreign investors may buy
shares of any Nigerian firm except firms on a "negative list"
(for example, manufacturers of firearms and ammunition and
military and paramilitary apparel). Foreign investors must
register with the NIPC after incorporation under the
Companies and Allied Matters Decree of 1990. The decree
abolished the expatriate quota system, except in the oil
sector, and prohibits nationalization or expropriation of a
foreign enterprise by the Nigerian government except for
cases determined to be in the national interest.


Despite extensive government efforts led by NIPC to improve
the country's investment climate, disincentives to investing
in Nigeria continue to plague foreign entrepreneurs. Among
the hurdles to overcome: high business taxes, confusing land
ownership laws, activist labor unions, arbitrary application
of regulations, corruption and extensive crime. There is not
a tradition supporting the sanctity of contracts, and the
court system for settling commercial disputes is weak, and
some believe biased. Local content restrictions are
encroaching upon the oil sector; foreign oil companies are
under pressure to increase procurement from indigenous firms.


Government efforts to eliminate financial crime such as money
laundering and advance-fee fraud (or "419 fraud" after the
relevant section of the Nigerian Criminal Code) have grown in
recent years but are largely ineffective. Meanwhile, fraud,
theft, and extortion are endemic. With the help of U.S. law
enforcement agencies, "419" perpetrators are being prosecuted
by the government.
International watchdog groups routinely rank Nigeria among
the most corrupt countries in the world. Yet, Nigeria is now
beginning to show signs of reversing decades of corruption
and economic neglect. In general, U.S. investors remain
cautious about conducting business in Nigeria. The sale of
U.S. goods and services to either public or private sector
enterprises is not restricted. However, anti-competitive
behavior throughout the Nigerian economy is endemic,
affecting U.S. products and services. The export of U.S.
goods and commodities to Nigeria also suffers from unfair
trade practices by foreign competitors who are often willing
to accommodate Nigerian requests for improper documentation
and payments. Some U.S. exporters believe sales are lost
when they refuse to engage in illicit or corrupt behavior.
Other U.S. businesses with extensive experience in Nigeria
believe that strict adherence to U.S. Foreign Corrupt
Practices Act (FCPA) standards is understood by their
Nigerian business counterparts and ultimately helps these
U.S. companies minimize their exposure to corruption.
ELECTRONIC COMMERCE
The growth of electronic commerce and telecommunications in
Nigeria, albeit from a low base, offers opportunities for the
provision of U.S. products and services. While there are no
trade restrictions that discriminate against U.S. products,
high technology industries suffer from the same constraints
noted for more traditional industries.
ANDREWS

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