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Cablegate: Nigerian Government Defends Import Bans

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

UNCLAS SECTION 01 OF 03 ABUJA 001113

SIPDIS


STATE FOR AF/W, AF/EPS AND EB/TPP
SATE PASS USTR PCOLEMAN
TASHKENT FOR BURKHALTER
COMMERCE FOR ITA/MAC


E.O. 12958: N/A
TAGS: ETRD PGOV PREL NI USTR
SUBJECT: NIGERIAN GOVERNMENT DEFENDS IMPORT BANS

Summary
-------
1. In June 9 and 10 meetings with Nigerian officials,
Assistant U.S. Trade Representative for Africa Florie
Liser and USTR Director for African Affairs Patrick
Coleman highlighted U.S. concern with the expansion of
Nigeria's import bans and its frequently changing
tariff schedules. With the exception of the Ministry
of Commerce, GON officials defended the bans, claiming
they were the only route to increasing domestic
agricultural and manufacturing production.
Unfortunately, this protectionist mind-set is gaining
currency, and convincing the GON to reverse its
illiberal trade policy will be difficult.


USTR Message
------------
2. In June 9 meetings with officials from the Office
of the President, Ministry of Commerce, Ministry of
Industry, and Ministry of Finance, Assistant U.S.
Trade Representative for Africa Florie Liser and USTR
Director for Africa Patrick Coleman highlighted U.S.
concern with a growing list of Nigerian import bans
and fluctuating tariff schedules. In particular, Liser
cited textiles and apparel, ice cream, fruit juices,
poultry, and mosquito netting as key areas.


3. In addition to constraining U.S. exports, Nigeria's
inconsistent trade policy was also diluting U.S.
investors' interest in the country, Liser noted.
Investors seek a stable regulatory environment; trade
bans and fluid tariff schedules make investors fear
they might not be able to import inputs required for
their investment, she cautioned. Liser also pointed
out that the bans were inconsistent with Nigeria's WTO
commitments. She suggested WTO-consistent tariffs that
earn revenue for the government would be a better way
to provide some protection for domestic industry. She
pointed out that many of the banned goods continue to
be smuggled into the country across Nigeria's overland
borders.


4. Liser also pushed Nigerian officials to encourage
their National Assembly to pass legislation making
Nigeria eligible for AGOA textile and apparel
benefits. She said other African countries were
creating thousands of jobs due to AGOA and that
Nigeria's window of opportunity would soon close.


Ministry of Commerce
--------------------
5. Liser met Director of the Ministry of Commerce
External Trade Department Fred Agah and other members
of his staff. Agah explained that in the 1970s,
Nigeria sought to use oil revenues to build a self-
sufficient economy through import substitution and
large projects to produce steel, paper, aluminum,
petrochemicals, and other goods. He said the collapse
of oil prices in the 1980s forced successive
governments to abandon these projects. Subsequently,
an IMF structural adjustment program in the late 1980s
focused on demand reduction completed the shift from
an economy based on production to one based on
speculation, according to Agah. He said imports
skyrocketed, and in response the government imposed
import bans on as many as 3,000 products by the early
1990s.


6. Agah said there had been some progress eliminating
trade barriers and claimed few remained. He pointed to
Nigeria's 2002 trade policy documents as evidence of
an overall commitment to trade liberalization.
However, Agah explained that a command and control
approach to economic policy still existed among
government leadership. That approach, coupled with
demands from politically influential domestic
producers, meant that trade barriers on certain goods
would be around for some time. Agah acknowledged the
negative impact the bans had on investment, both
domestic and foreign, but said that his Ministry was
essentially powerless on the issue.


7. On AGOA, Agah said both Houses had passed
legislation to strengthen the trans-shipment penalty,
a change necessary to Nigeria's eligibility for AGOA
apparel benefits. He said the National Assembly would
send the bill to the President for signature after
harmonizing the Senate and House versions. Agah blamed
the United States for the delay in getting the
legislation through, saying that we were not
consistent in providing information on what provisions
were necessary to make Nigeria eligible for apparel
benefits.


8. Agah requested information on our positions on key
issues within the Doha round of WTO negotiations. He
understood our basic proposals, but wanted to know the
issues on which we would be amenable to compromise and
those on which our position is non-negotiable. Agah
claimed this knowledge would help Nigeria better
support us on areas where Nigeria and the United
States have common interests.


9. In response to an inquiry from Liser, Agah said a
U.S.-Nigeria TIFA in early July would not be feasible.
Agah noted that a Minister likely would not have been
confirmed by then, so he proposed postponing the
meeting until September. Liser agreed to coordinate
with Washington to fix a date.


Ambassador's Luncheon
---------------------
10. Ambassador Jeter hosted a luncheon for Nigerian
officials where--in addition to discussion of broader
issues such as poverty alleviation and corruption--
Liser made her key points on trade policy
inconsistency and AGOA eligibility. At the lunch were
Head of the President's National Price Intelligence
Committee Oby Ezekwesili, Director General of the
Bureau of Public Enterprises Nasir El-Rufai, Former
Chief Economic Advisor Magnus Kpakol (now Special
Advisor on Poverty Alleviation), and Special Advisor
to the Vice President for Economic Affairs Hamilton O.
Isu.


11. Kpakol attempted to defend the import bans and
tariff increases saying that they were relatively few
and were necessary to supporting domestic production.
He aknowledged Liser's point that in some cases the
bans protected only one manufacturer, but insisted
that the bans were part of a well-considered plan to
promote domestic manufacturing capacity. (Comment:
Last year, Kpakol was a free trader and an ally--
although often ineffective--in our attempts to tilt
the GON toward greater trade liberalization. However,
he appears fully converted to the protectionist
congregation. His conversion eliminates a formerly
reformist voice from within senior policy circles. It
also demonstrates the strength of the protectionists
within the GON. End Comment.)


Ministry of Finance
-------------------
12. At the Ministry of Finance, Liser met Director for
Budget Implementation, Monitoring, and Evaluation C.
D. Gali and Director for Fiscal Policy Haliru Aliyu.
Gali said import bans were counterproductive because
they were impossible to enforce and brought in no
tariff revenue.


13. Aliyu disagreed, saying buyers preferred imports
over local goods. Because there is local production,
he cited toothpicks, water, biscuits, and textiles as
"needless imports." Aliyu added that there was
"nothing really permanent" about the bans. On mosquito
netting, Aliyu said he recently met netting
manufacturers who claimed they are overstocked with
yarn. He concluded there was therefore no need to
import mosquito netting, since local manufacturing
capacity was underutilized.


Ministry of Industry
--------------------
14. Ministry of Industry Permanent Secretary Haruni
Sanusi and his staff also received Liser's trade
policy message. Sanusi explained that Nigeria's
industrial policy is to use trade policy to protect
domestic industry. He said bans were necessary to
encourage growth and allow domestic goods to gain
market share. He pointed to fruit juice as one example
of a ban that was successful in building sales for a
local producer.


15. Sanusi acknowledged that smuggling was a problem
but insisted that stronger enforcement effort would
all but eliminate smuggling. He said the bans were
temporary and more may follow, but insisted they would
be closely monitored to assess their impact.


Ministry of Agriculture
-----------------------
16. On June 10, Patrick Coleman met Ministry of
Agriculture Permanent Secretary O. A. Idachi and staff
to discuss trade policy. Idachi insisted the bans were
important to food security in Nigeria. He said Nigeria
hoped to be a net food exporter again, and recognized
that agricultural development was key to poverty
alleviation. Idachi identified several priorities for
Nigeria: rice, vegetable oil, and livestock. He said
trade policy would be used to protect domestic
production in those areas.


17. Idachi's staff said trade policy was the only tool
available to protect Nigerian farmers from intense
competition from developed countries that subsidize
their farmers. They complained trade liberalization
only benefits developed countries. Coleman countered
that USTR's position was to eliminate export subsidies
and greatly reduce domestic support in the Doha round.


Comment
-------
18. Economic growth and industrialization based on
import substitution, a development strategy that has
failed more often than it has worked, has become
policy in Nigeria. Without question, Nigeria has great
economic potential. It possesses abundant natural
resources and a large domestic market. That potential
has been underutilized thus far. Instead of
identifying internal structural flaws that obstruct
domestic production, the GON has decided to blame
unfair international competition, a convenient fall
guy. This sentiment is held not only by those in
government, but many people in society. Ask an average
Nigerian about the recent ban on fruit juice, and they
will answer "why should we import what we can make at
home?"


19. This nationalistic sentiment, however, does not
duly consider economic realities nor the negative
impact on the consumer. Some goods--such as fruit
juice--are in short supply because domestic producers
cannot meet demand. Consumers now have no choice but
to purchase inferior quality goods. Meanwhile,
investors who could help local manufacturers build
capacity or improve quality hold their money outside
Nigeria, fearing that trade or other economic policy
will change again abruptly putting them on the wrong
side of a trade barrier.


20. Given the relatively strong consensus for the
import substitution strategy, Nigeria will not likely
turn from its protectionist course very quickly. In
fact, additional items will probably be added to the
prohibited list in the months to come. However, we
hope that our harping and the patent ineffectiveness
of the protectionist approach will, sooner rather than
later, cause the GON to enter into a new romance with
trade liberalization. End Comment.


Jeter

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