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Cablegate: Nigeria: New Bans On Imports

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

UNCLAS SECTION 01 OF 02 LAGOS 000309

SIPDIS

STATE PLEASE PASS TO USTR PATRICK COLEMAN
PARIS FOR OECD

E.O. 12958: N/A
TAGS: ETRD EAGR EINV ECON BEXP NI
SUBJECT: NIGERIA: NEW BANS ON IMPORTS

REF: 03 ABUJA 600

PARA THREE RELATES PROPRIETARY INFORMATION. PLEASE
PROTECT ACCORDINGLY.

1. (U) Summary: GON officials recently announced a new
series of import bans, this time on items ranging from
toothpaste and wheelbarrows to plastics, textiles,
detergents, and meat products. The bans' impact on
overall U.S. exports to Nigeria will likely be minimal,
but some U.S. firms, particularly Procter & Gamble,
will suffer losses. Mission personnel will continue to
support U.S. exporters and convey USG concerns about
Nigeria's protectionist trade policies to GON
officials, but given the bans' political nature,
convincing the GON to remove them or replace them with
tariffs will likely be difficult. End summary.

2. (U) Nigeria's use of import bans as a trade policy
tool is nothing new: several of the twenty-odd items on
the GON's September 2003 Import Prohibition List have
been banned for years. The bans' cumulative impact on
U.S. producers has been negligible, mostly because the
specified items comprise (or would comprise) a very
small percentage of overall U.S. exports to Nigeria
(reftel). Although the GON's latest additions to the
Import Prohibition List more than double its length,
most of the newly banned items are not among the mix of
products exported to Nigeria by U.S. firms. Certain
producers, of course, do stand to lose, particularly
those who export plastics, textiles, detergents, meat
products, or men's footwear. U.S. trade data suggests
potential losses to these producers could total $30
million per year, but unless these exports account for
a significant proportion of an individual firm's total
exports, businesses will survive intact. The potential
$30 million loss represents no more than 3 percent of
total U.S. exports to Nigeria. Thus far, U.S. firms
seem relatively unconcerned at the prospect of losing
access to Nigerian markets. Inquiries and protests
have been few and far between.

3. (SBU) Only one firm, Procter & Gamble, has requested
Mission advocacy. Company executives said February 6
that P&G would have to discontinue sales of its Ariel
detergent (which it imports from Morocco) in October
2004 if the GON's ban on imported soaps and detergents
remains in place. Having lost $27 million in its first
nine years of operation, P&G Nigeria has only recently
begun to break even and begin expanding its operations.
It opened a $10 million diaper and feminine pads
factory in 2002 and invested $4 million in a second
feminine pads facility set to open next month. These
plants, together with a proposed detergent factory, may
be at risk if P&G's profits from Ariel can no longer be
realized and re-invested. The firm may be able to
offset its losses by producing detergent locally, but
regaining lost market share may be difficult. P&G
executives have spoken to President Obasanjo and
Ministry of Finance officials, but the GON shows no
willingness to lift the ban.

4. (U) GON officials are not unfamiliar with arguments
against import bans. Mission personnel have frequently
pointed out that bans are inefficient, economically
counter-intuitive, and difficult to enforce. Bans do
little to stimulate domestic production, in part
because they raise the costs of doing business and in
part because corresponding increases in contraband
goods deprive local manufacturers of any incentive to
increase productivity. Banned items have long entered
the country illegally - the Nigeria Customs Service
lacks the personnel and technical capacity it needs to
prevent this - and will likely continue to cross
Nigeria's porous borders. Consumers also bear the
costs of illegally imported goods or expensive locally
manufactured goods, and society as a whole suffers.
Moreover, local manufacturers are in many cases
incapable of expanding production quickly enough to
offset anticipated shortfalls. Nigerian meat and fruit
producers, for example, would have to spend years
building their industries before their farms and
orchards would yield significant increases in output or
revenue.

5. (U) Under Nigeria's World Trade Organization
commitments, GON officials should have replaced import
bans with tariffs long ago. Mission personnel have
frequently reminded GON officials that bans are illegal
under WTO rules, but the GON insists "WTO protocol
allows countries to impose bans of a maximum of five
years to enable local industries to compete."
Replacing the bans with tariffs would make sense: like
bans, tariffs reduce imports, but they have the added
benefit of generating tariff revenue, something that
accounts for a significant proportion of the GON's
total annual income. If the GON imposed 100 percent
tariffs on each of the items it now bans, it could earn
nearly $30 million per year from the U.S. alone. The
failure to levy tariffs deprives the GON of tariff
revenue and leaves in place bans that violate WTO rules
and contradict the GON's stated commitment to more
liberal trade policies.

6. (SBU) Despite these arguments, GON officials are
unlikely to change course. Some have hinted at future
bans, arguing that benefits to local producers far
outweigh lost tariff revenue. GON officials say
repeatedly that by eliminating (or at least reducing)
imports, bans stimulate domestic production and give
local producers a chance to compete. This, in turn,
supposedly creates jobs, raises incomes, and enhances
economic growth. These arguments are largely
inaccurate, but they appeal to a public desperately in
need of jobs, and GON officials know this. With the
2007 elections three years away and politicians already
trying to garner suport, GON officials are unlikely to
abandon populst policies. Import bans are highly
political isues, and many provide lucrative means of
rewarding politicians' largest campaign contributors.
Bas on bagged cement and noodles, for example, beneft
one particular firm, Dangote Industries, whoseowner is
thought to have contributed $25-50 millon to President
Obasanjo's 2003 election campaign.

7. (SBU) Import bans rarely succeed in stimulating the
local economy, but they do create opportunities for
corruption. Those who import banned items provide
kickbacks to Customs officials and transportation
companies, and local manufacturers who benefit from the
bans often express their appreciation in cash. In the
end, everyone kicks up, a handful of people make a
great deal of money, and Nigerian consumers bear the
costs. Those who benefit from the system have little
incentive to eliminate it, every incentive to maintain
it, and even greater incentives to expand it.

8. (U) Comment: Mission personnel will continue to
support U.S. exporters and convey USG concerns about
Nigeria's protectionist trade policies to GON
officials. Advocacy may be most effective if President
Obasanjo is approached directly, particularly since the
vast majority of import bans appear to originate in his
office. The U.S. Trade Representative's Office and
other Washington agencies could help by preparing a
high-level demarche. In the meantime, Mission
personnel will concentrate on expressing USG concerns
in meetings, speeches, op-eds, and press briefings.
Mission personnel will also promote new business
opportunities to U.S. exporters. Paradoxically, the
benefits to U.S. producers may actually outweigh losses
related to the bans, particularly if U.S. exports of
capital equipment and other inputs to Nigerian start-
ups increase. We might express our opposition to the
GON's import bans, but we should also do what we can to
take advantage of new business opportunities. End
comment.

HINSON-JONES

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