US embassy cable - 03LAGOS2607

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. 
 
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TRADE SUMMARY 
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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. 
 
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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. 
 
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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. 
 
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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. 
 
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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. 
 
 
 
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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. 
 
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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