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Cablegate: Nigeria: 2004 National Trade Estimate Report

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 LAGOS 002607

SIPDIS

STATE FOR EB/MTA/MST
STATE PLEASE PASS TO USTR GLORIA BLUE

E.O. 12958: N/A
TAGS: ETRD EFIN EINV ECON NI
SUBJECT: NIGERIA: 2004 NATIONAL TRADE ESTIMATE REPORT

REF: STATE 310953

1. (U) In response to reftel, Post is pleased to
provide the following update to the 2003 National Trade
Estimate Report. The figures in paragraph 2 will be
updated by USTR.

-------------
TRADE SUMMARY
-------------

2. (U) The U.S. trade deficit with Nigeria was $4.9
billion in 2002, a decrease of $2.9 billion from $7.8
billion in 2001. U.S. goods exports in 2002 were $1.1
billion, up 10.7 percent from the previous year.
Corresponding U.S. imports from Nigeria were $6.0
billion, down 32.0 percent from 2001. Nigeria is the
52nd largest export market for U.S. goods. The flow of
U.S. foreign direct investment (FDI) in Nigeria in 2001
was $1.5 billion, up from $1.2 million in 2000. U.S.
FDI in Nigeria is primarily concentrated in the
petroleum sector.

---------------
IMPORT POLICIES
---------------

Tariffs

3. (U) Tariffs provide the Nigerian government with its
second largest source of revenue after oil exports. In
its last major tariff revision in March 2003, the
Nigerian government cut duties on 230 tariff line items
(mostly raw materials, base metals, and capital
equipment) to as low as 2.5 percent, while raising them
on 30 line items (largely plastic, rubber, and aluminum
articles) to as high as 65 percent. Most increases
were relatively small. The Nigerian government
announced similar cuts and increases, often on the same
items year-on-year, in 2000 and 2001 and will likely
announce another round of tariff adjustments as part of
its 2004 budget.

4. (U) Frequent policy changes and uneven duty
collection make importing difficult and expensive and
create severe bottlenecks for commercial activities.
The problem affects foreign and domestic investors
alike and is aggravated by Nigeria's dependence on
imported raw materials and finished goods. Many
leading importers resort to under-invoicing and
smuggling to avoid paying full tariffs.

Non-tariff Trade Barriers

5. (U) The Nigerian government continues to violate WTO
prohibitions against certain non-tariff trade barriers.
Bans on a variety of items - sorghum, millet, wheat
flour, cassava, frozen poultry, vegetable oil (in
bulk), kaolin, gypsum, mosquito repellent coils,
printed fabrics, used clothing, and bagged cement -
continued into 2003. A ban on used car imports also
continued but was altered to prohibit the importation
of vehicles more than eight (rather than five) years
old. Food products such as fruit juice in retail
packs, pasta, biscuits, confectionery and chocolate
products, canned beer, and bottled water were added to
the list of banned items in 2003.

Customs Barriers

6. (U) Nigeria's ports continue to present major
obstacles to trade. Importers face inordinately long
clearance procedures, high berthing and unloading
costs, erratic application of customs regulations, and
corruption. The Nigeria Customs Service (NCS) stepped
up enforcement of its 100 percent physical inspection
policy in 2001 in an attempt to reduce smuggling and
under-valuation of imports, but officials admit they do
not have the resources to inspect every incoming
container. The NCS operates a pre-shipment inspection
regime under which contracted inspection companies at
ports of origin issue inspection reports that their
Nigerian counterparts use to indicate items shipped,
their value, and applicable customs duties.

7. (U) The NCS planned to abandon its pre-shipment
inspection regime for 100 percent destination
inspections in 2002 and 2003, but introduction was
delayed when importers protested that NCS officials
might use their positions as sole valuation authorities
to extract unauthorized facilitation fees. The
Nigerian government now hopes to introduce destination
inspections in early 2004, but NCS risk assessment and
other databases are not fully operational.

--------------------------------------------- --
STANDARDS, TESTING, LABELING, AND CERTIFICATION
--------------------------------------------- --

8. (U) Rules concerning sanitary and phytosanitary
standards, testing, and labeling are relatively well
defined, but bureaucratic hurdles slow the approval
process. Regardless of origin, all food, drug,
cosmetic, and pesticide imports must be accompanied by
certificates of analysis from manufacturers and
appropriate national authorities, and specified animal
products, plants, seeds, and soils must be accompanied
by proper inspection 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 multiple markings should be refused entry,
but such items are often found in Nigerian markets.

9. (U) High tariffs and erratic application of import
and labeling regulations make importing high-value
perishable products difficult. Disputes among Nigerian
agencies over the interpretation of regulations often
cause delays, and frequent changes in Customs
guidelines slow the movement of goods through Nigerian
ports. These setbacks often result in product
deterioration and significant losses for perishable
goods importers.

10. (U) The National Agency for Food and Drug
Administration and Control (NAFDAC) is charged with
protecting Nigerian consumers from fraudulent or
unhealthy products. The agency recently targeted the
illicit importation of counterfeit and expired
pharmaceuticals for special attention, particularly
when imports are from the Far East and South Asia.
NAFDAC's severely limited capacity for carrying out
inspection and testing contributes to an occasionally
heavy-handed or arbitrary approach to regulatory
enforcement, and the agency has occasionally challenged
legitimate food imports.

11. (U) U.S. products do not appear to be subject to
extraordinary or discriminatory restrictions or
regulations, but the widespread use of fraudulent
documentation by non-U.S. exporters may put U.S.
exporters at a competitive disadvantage. When illicit,
undocumented imports of particular products such as
frozen poultry exceed legal imports, the fact of
meeting stipulated Nigerian standards becomes
irrelevant.

----------------------
GOVERNMENT PROCUREMENT
----------------------

12. (U) The Obasanjo administration has made modest
progress on its pledge to practice open and competitive
bidding and contracting for government procurement and
privatization. The initial stages of the tendering
process tend to be transparent and even-handed, but as
tenders move through the decision-making process, they
often become opaque. Allegations by unsuccessful
bidders of corrupt behavior by senior government
officials and foreign companies are common, but they
rarely provoke substantive reactions.

13. (U) New procurement and contracting guidelines were
issued in January 2001, and a due process office, the
Budget Monitoring and Price Intelligence Unit, was
established. The agency acts as a clearinghouse for
government contracts and procurement and monitors the
implementation of projects to ensure compliance with
contract terms and budgetary restrictions.
Procurements worth more than 50 million naira (about
$380,000) are subject to full due process. Foreign
companies incorporated in Nigeria receive national
treatment, and government tenders are published in
local newspapers. U.S. companies have won Nigerian
government contracts in several sectors.

----------------
EXPORT SUBSIDIES
----------------

14. (U) The Nigerian Export Promotion Council (NEPC)
and the Nigerian Export-Import Bank (NEXIM) administer
industrial export incentive programs that include tax
concessions, export expansion grants, export
development funds, capital assets depreciation
allowances, and foreign currency retention programs.
Funding constraints limit the effectiveness of these
programs, and many people allege that only favored
individuals and businesses benefit. Aside from these
limited incentive programs, Nigeria's non-oil export
sector does not receive subsidies or other significant
support from the government.

15. (U) 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, but lower export levels are
reportedly tolerated. The Nigerian government
converted the Calabar export processing zone into a
free trade zone in 2001, but it is unclear whether the
new designation has improved its export performance.

---------------------------------------------
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
---------------------------------------------

16. (U) 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 may
establish a legal framework for an IPR system compliant
with WTO rules. At the moment, Nigeria's IPR laws
afford protection that complies with most WTO
provisions.

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

18. (U) The Nigerian government's lack of institutional
capacity to address IPR issues is a major constraint to
enforcement. Relevant Nigerian institutions suffer
from low morale, poor training, and limited resources,
and fraudulent alteration of IPR documentation is
common. Patent and trademark enforcement remains weak,
and judicial procedures are slow and subject to
corruption. Companies rarely seek trademark or patent
protection because they generally perceive Nigerian
enforcement institutions as ineffective. Nonetheless,
recent government efforts to curtail IPR abuse have
yielded results. The Nigerian police, working closely
with the Nigerian Copyright Commission (NCC), have
raided enterprises producing and selling pirated
software and videos, and a number of high-profile
charges have been filed against IPR violators.
Unfortunately, most raids appear to target small rather
than large and well-connected pirates, and very few
cases involving copyright, patent, or trademark
infringement have been successfully prosecuted. Most
cases have been settled out of court, if at all.

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

20. (U) IPR problems in Nigeria's film industry
worsened dramatically following the Nigerian
government's 1981 nationalization of the country's
filmmaking and distribution enterprises as part of its
campaign to "indigenize" the economy. The legitimate
film distribution market has yet to recover. Almost no
foreign feature films have been distributed in the
country in the last two decades, movie theaters have
ceased to operate, and the widespread pirating of
foreign and domestic videos discourages the entry of
licensed distributors.

-----------------
SERVICES BARRIERS
-----------------

21. (U) Foreign participation in the services sector is
generally not restricted. Regulations provide 100
percent foreign access to service sectors, including
banking, insurance, and securities. Central Bank of
Nigeria directives stipulate minimum levels of paid-in
capital. At least two foreign banks have initiated
operations in Nigeria in recent years, and several
Nigerian banks have received infusions of foreign
capital.

22. (U) Professional bodies in engineering, accounting,
medicine and law define minimum professional
requirements. Nigeria imposes quotas on expatriate
employment based on firms' issued capital. Quotas are
especially strict in the oil and gas sector. Oil
companies must hire Nigerian workers unless they can
demonstrate that particular positions require expertise
not found in the local workforce. Fields such as
finance and human relations are almost exclusively
reserved for Nigerian hires, but certain geosciences
and management positions may be filled by expatriates
with the approval of the National Petroleum Investment
and Management Services (NAPIMS) agency. Each oil
company negotiates with NAPIMS for its expatriate
worker allotment.

-------------------
INVESTMENT BARRIERS
-------------------

23. (U) 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" (such as 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 prohibits nationalization
or expropriation of a foreign enterprise by the
Nigerian government except in cases of national
interest.

24. (U) Despite efforts to improve the country's
investment climate, disincentives to investing in
Nigeria continue to plague foreign entrepreneurs.
Potential investors must contend with high business
taxes, confusing land ownership laws, arbitrary
application of regulations, corruption, and extensive
crime. There is no tradition supporting the sanctity
of contracts, and the court system for settling
commercial disputes is weak and sometimes biased.
Foreign oil companies are under pressure to increase
procurement from indigenous firms. NAPIMS has set a
target of 40 percent local content for oil-related
projects; how that is achieved - whether it is based on
the value of the contract or the nature of the goods
and services used and whether using a Nigerian partner
or subcontractor is sufficient regardless of the origin
of equipment or raw materials - remains nebulous and
subject to negotiation on a project-by-project basis.

25. (U) Nigerian government efforts to eliminate
financial crimes such as money laundering and
advance-fee fraud (or "419 fraud" after the relevant
section of the Nigerian Criminal Code) have increased
but been largely ineffective. Fraud, theft, and
extortion are rampant. With the encouragement and
cooperation of U.S. law enforcement agencies, more
"419" perpetrators are being prosecuted by the Nigerian
government.

26. (U) International watchdog groups routinely rank
Nigeria among the most corrupt countries in the world,
but Nigeria is beginning to show signs of reversing
decades of corruption and economic stagnation. While
sales of U.S. goods and services to public and private
sector enterprises is not restricted, U.S. suppliers
face endemic anticompetitive behavior. Some U.S.
exporters believe sales are lost when they refuse to
engage in illicit or corrupt behavior. Others say
Nigerian businessmen and officials understand that U.S.
firms must adhere to U.S. Foreign Corrupt Practices Act
standards and ultimately believe these restrictions
help minimize their exposure to corruption.
Unfortunately, U.S. exports to Nigeria occasionally
suffer from unfair trade practices by foreign
competitors willing to accommodate requests for
improper payments.

-------------------
ELECTRONIC COMMERCE
-------------------

27. (U) 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 such U.S. products, high-
technology industries suffer from the same constraints
noted for other industries.

HINSON-JONES

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