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Cablegate: National Trade Estimate Report, Nigeria

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 002080

SIPDIS

USTR/G. BLUE AND EB/MTA/MST

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

REF: STATE 240980

Below is the National Trade Estimate Report for Nigeria,
2005.

Begin report.

TRADE SUMMARY

The U.S. trade deficit with Nigeria was $9.4 billion in
2003, an increase of $4.5 billion from $4.9 billion in
2002. U.S. goods exports to Nigeria in 2003 were $1.0
billion, down 9.1 percent from the previous year.
Corresponding U.S. imports from Nigeria were $10.4 billion,
up 73.3 percent from 2002. Petroleum products accounted
for 91 percent of these imports from Nigeria. Nigeria is
the 52nd-largest export market for U.S. goods and the
leading sub-Saharan African exporter to the U.S market.
Nigeria accounted for 40.5 percent of total U.S. imports
from sub-Saharan Africa in 2003. U.S. foreign direct
investment (FDI) in Nigeria in 2003 was $2.1 billion at
historical cost, up from $1.5 billion in 2001. U.S. FDI in
Nigeria is concentrated in the petroleum sector.

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 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. Tariffs on agricultural products such as corn and
rice were also raised to 70 percent and 100 percent,
respectively. President Obasanjo announced in October 2004
that Nigeria will begin harmonizing its tariff structure
with that of the Economic Community of West African States
in January 2005, for implementation in July 2005. Items
banned would remain so until sometime in 2007, when the
bans would be replaced by tariffs. Frequent import regime
changes and uneven duty collection make importing difficult
and expensive and occasionally create severe commercial
bottlenecks. This problem is aggravated by Nigeria's
dependence on imported raw materials and finished goods and
affects foreign and domestic manufacturers. Many importers
resort to under-invoicing and smuggling to avoid tariffs or
bans.

Non-tariff trade barriers

The Nigerian Government continues to violate WTO
prohibitions against non-tariff trade barriers. Bans on a
variety of items sorghum, millet, wheat flour, cassava,
frozen meat and poultry products, vegetable oil (in bulk),
biscuits, pasta (including spaghetti), bottled water, fruit
juice in retail packs, cookies, confectionery and chocolate
products, beer, kaolin, gypsum, mosquito repellent coils,
printed fabrics, used clothing, cars more than eight years
old, and bagged cement continued into 2004. Men's
footwear, leather bags and plastic bags (excluding ladies
purses), all textiles and yarn, furniture, toothpaste,
household plastic ware, soap and detergents, fresh and
plastic flowers, and fresh fruits were added to the list of
banned items in 2004.

Customs barriers

Nigerian port practices continue to present major obstacles
to trade. Importers face long clearance procedures, high
berthing and unloading costs, erratic application of
customs regulations, and corruption. The Nigeria Customs
Service (NCS) stepped up its enforcement of a 100-percent
physical inspection program 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 preshipment
inspection regime under which contracted inspection
companies at ports of origin issue inspection reports
(sampling inspections) that their Nigerian counterparts use
to indicate the value of items shipped, and applicable
customs duties.

The NCS had planned to replace its preshipment inspection
regime with the physical inspection in port of all import
shipments in 2002 and 2003, but the change was deferred
after importers protested that NCS officials might use
their positions as sole-valuation authorities to extract
unauthorized facilitation fees. Although the Nigerian
Government now hopes to introduce such an inspection regime
in early 2005, NCS risk-assessment and other databases are
not fully operational.

The Nigerian Customs Service is understaffed, and turnover
of its port personnel is very high.
STANDARDS, TESTING, LABELING, AND CERTIFICATION
Rules concerning sanitary and phytosanitary standards,
testing, and labeling are well defined, but bureaucratic
hurdles slow the import-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. The NCS
should prevent the entry of products with dual or multiple
markings, but such items are often found in Nigerian
markets.

High tariffs and erratic application of import and labeling
regulations make importing high-value perishable products
difficult. Disputes between 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 events often result in
product deterioration and significant losses for
perishable-goods importers.

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

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.

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 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.

New procurement and contracting guidelines were issued in
January 2001, and a due-process office, the Budget
Monitoring and Price Intelligence Unit, was also
established. The unit acts as a clearing house for
government contracts and procurement and monitors the
implementation of projects to ensure compliance with
contract terms and budgetary restrictions. Procurement
orders exceeding 50 million naira (about $385,000) are
subject to "due process" review. (Due process
certification aims at ensuring that the procurement process
for public projects adheres to international standards for
competitive bidding.) In December 2004, the Government
submitted a bill to establish a Bureau of Public
Procurement to the National Assembly.

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. Unfortunately, many
companies who have won contracts have subsequently had
difficulty getting them funded, and some companies having
won contracts for which funds were allocated have had
trouble getting paid.

EXPORT SUBSIDIES

The Nigerian Export Promotion Council and the Nigerian
Export-Import Bank administer export incentive programs
that include tax concessions, export development funds,
capital assets depreciation allowances, and foreign
currency retention programs. Funding constraints limit the
effectiveness of these programs. Since many businessmen
alleged that only favored individuals and businesses
benefit, the government suspended indefinitely the export-
expansion grant program in 2004 until government
investigations into corrupt practices associated with its
implementation are concluded. Aside from these incentive
programs, Nigeria's non-oil export sector does not benefit
from subsidies or other significant support from the
government.

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
be exported, but lower export levels are tolerated. The
Nigerian Government converted the Calabar export-processing
zone into a free-trade zone in 2001. It is unclear whether
the new designation has improved its export performance.

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 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.

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

Patent and trademark enforcement remains weak, and judicial
procedures are slow and subject to corruption.
Nonetheless, recent government efforts to curtail IPR abuse
have yielded results. The Federal High Court of Enugu,
Nigeria, issued an interim injunction on November 23, 2004
against several firms infringing Honeywell International's
patented Autolite spark plugs. The court warned all
distributors, dealers, and retailers in Nigeria that the
sale of Autolite spark plugs not manufactured by Honeywell
International is illegal and constitutes an offense
punishable by fine or imprisonment.

Nigeria's broadcast regulations do not permit
rebroadcasting or excerpting of 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 monitors the industry
and is responsible for punishing infractions.

IPR problems in Nigeria's film industry worsened 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, and only one multiplex
movie theater operates in Nigeria. Widespread pirating of
foreign and domestic videotapes discourages the entry of
licensed distributors.

The Nigerian police force, working closely with the
Nigerian Copyright Commission, nevertheless 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.

SERVICES BARRIERS

Foreign participation in the services sector is generally
not restricted. Regulations provide 100-percent foreign
access to service sectors, including banking, insurance,
telecommunications, and securities. Central Bank of
Nigeria directives stipulate minimum levels of paid-up
capital. At least three foreign banks operate in Nigeria,
and several Nigerian banks have foreign shareholders.

Professional societies in engineering, accounting,
medicine, and law define minimum professional requirements.
Nigeria imposes quotas on expatriate employment based on
the issued capital of firms. 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. Positions in finance and human relations
are almost exclusively reserved for Nigerians; certain
geoscience and management positions may be filled by
expatriates with the approval of the National Petroleum
Investment and Management Services (NAPIMS) agency. Each
oil company must negotiate its expatriate worker allotment
with NAPIMS.

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" (such as manufacturers of firearms,
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 the national interest.

Despite efforts to improve the country's investment
climate, disincentives to investing in Nigeria continue to
plague foreign entrepreneurs. Potential investors must
contend with poor infrastructure, complex tax
administration procedures, confusing land ownership laws,
arbitrary application of regulations, corruption, and
extensive crime. The sanctity of contracts is often
violated, and Nigeria's court system for settling
commercial disputes is weak and sometimes biased. Foreign
oil companies are under much pressure to increase
procurement from indigenous firms. NAPIMS has set a target
of 40 percent local content for oil-related projects by
2005 and 60 percent by 2010. How this is to be achieved
whether it is to be based on the value of a contract or the
nature of the goods and services used and whether a
Nigerian partner or subcontractor will do, regardless of
the origin of equipment or raw materials remains nebulous
and subject to negotiation project by project.

Nigerian Government efforts to eliminate financial crimes
such as money laundering and advance-fee fraud (or "419
fraud" named after the relevant section of the Nigerian
Criminal Code) have increased. With the encouragement and
cooperation of U.S. law enforcement agencies, the Nigerian
Government is now prosecuting more "419" perpetrators. But
fraud, theft, and extortion remain rampant.

International monitoring groups routinely rank Nigeria
among the most corrupt countries in the world.
Transparency International, for example, ranked Nigeria the
third most corrupt nation in the world in 2004. While sales
of U.S. goods and services to public-and private-sector
enterprises are not restricted, some U.S. suppliers believe
they lose sales when they refuse to engage in illicit or
corrupt behavior. Other U.S. exporters say Nigerian
businessmen and officials understand that U.S. firms must
adhere to U.S. Foreign Corrupt Practices Act, and believe
its restrictions help 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 against such U.S. services, the
high technology industry suffers from the same constraints
affecting other industries.

2. End report.

FUREY
NIGERIA

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