US embassy cable - 04LAGOS309

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