US embassy cable - 05ABUJA1133

UNCLAS SECTION 01 OF 03 ABUJA 001133 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD, EFIN, ECON, NI, ECOWAS 
SUBJECT: NIGERIA'S TRADE POLICY: ECOWAS COMMON EXTERNAL 
TARIFF TO THE RESCUE? 
 
1. Summary: Since July 2003, Nigeria's trade policy has 
taken a protectionist turn, with import bans imposed on 
various items including textiles, many consumer goods, and 
industrial minerals.  Now Nigeria appears slowly to be 
implementing ECOWAS's new Common External Tariff (CET), 
which would harmonize the tariffs of Nigeria with those of 
the other ECOWAS member states and make Nigeria's trade 
policies more predictable.  Nigeria has also abolished 
import bans on certain selected goods, mainly raw 
materials,in line with its stated intentions to implement 
the CET by July 2005.  Nigeria's intention to start 
implementing the CET by July 2005 faces legislative 
obstacles and opposition from local manufacturers. 
Nevertheless, GON officials claim there is no going back on 
Nigeria's implementation of the CET.  End summary. 
 
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From Import Bans to Tariff Bands 
-------------------------------- 
 
2. Nigeria's trade policy took a protectionist turn in July 
2003 when the GON imposed a ban on various imports including 
textiles, many consumer goods, and industrial minerals such 
as barite, which is used in oil drilling. 
In October 2004, in his presentation of the 2005 budget to 
the National Assembly, President Olusegun Obasanjo stated 
that Nigeria will implement the Economic Community of West 
African States' (ECOWAS) Common External Tariff (CET), with 
its 0, 5, 10 and 20 percent tariff "bands," by July 2005. 
Obasanjo added that Nigeria will rescind all import bans 
during the CET transition period that ends on December 31, 
2007. 
 
3.   On June 9, officials of the ECOWAS Secretariat in Abuja 
told Embassy Economic Specialist that the GON will start 
implementing the CET in July, although the CET likely will 
not apply to all types of goods.  This is because the GON 
has not yet formulated its list of CET exceptions that will 
be renegotiated under CET Types A or B classifications. 
(Begin note:  Type A exceptions involve products whose 
tariff rates member states wish to harmonize with that of 
the ECOWAS CET's predecessor, the francophone West African 
Monetary Zone, over the 2005-07 transition period.  Type B 
exceptions concern products for which member states will 
negotiate the level of the CET rate and that will be 
harmonized by the end of 2007.  See paragraphs 15 and 16 for 
more information.  End note.)  The CET's formal launch by 
the ECOWAS heads of government, however, is no longer a 
prerequisite for the implementation of the CET by ECOWAS 
member states. (Begin note:  This launch was deferred until 
May 2005 to coincide with the 30th anniversary of the 
establishment of ECOWAS because, as of January 2005, the 
organization had not yet received the national status 
reports on the CET's implementation from Nigeria and Ghana. 
In the end, however, ECOWAS did not inaugurate the CET 
during the commemoration of ECOWAS' 30th anniversary.  End 
note.) 
 
4. During a regional workshop on the CET's adoption held in 
Abuja on May 23, the GON delegation reaffirmed Nigeria's 
commitment to start implementing the CET in July 2005.  The 
GON said it would do so with the launch of its "green book" 
(book of tariff rates), which it has finalized, and that it 
soon will submit the green book for consideration and 
adoption to the Federal Executive Council (i.e., the 
President's cabinet) and the National Assembly.  The GON 
told the meeting that Nigeria had introduced an additional 
tariff of 50 percent on certain "strategic products" (in 
actuality, high-end goods such as luxury cars), but that 
this 50-percent tariff will be phased out over the 2005-07 
transition period.  The GON told the meeting that Nigeria's 
list of exceptions will be ready "soon." 
 
5. At an earlier regional workshop on the adoption of the 
CET held in Banjul, Gambia, from March 30 to April 1, 2005, 
the GON delegation noted that Nigeria's CET implementation 
plan includes the CET's four tariff bands, with an 
exceptional fifth band of 50 percent.  This 50-percent 
tariff will apply during the 2005-07 transition period to 
finished goods and to those items that Nigeria has no 
problem producing in sufficient quantity to meet domestic 
demand.  Nigeria's delegation to the Banjul workshop said 
the GON will revise its list of banned items and will phase 
out all import bans by 2007.  (Begin comment: One week 
later, the GON lifted its ban on some goods, mostly raw 
materials for use by the furniture, textile, pharmaceutical, 
and agribusiness industries.  End comment.) 
 
6. At the Banjul workshop, Nigeria additionally signaled its 
intention to request Type B exceptions for raw materials on 
which it now charges a 2.5 percent duty, as opposed to the 
CET rate of 5 percent.  Nigeria's delegation further 
indicated the GON plans to implement changes on tax rates, 
and that Nigeria will raise its value-added tax from 5 
percent to 10 percent. 
 
--------------------------------------------- - 
Nigeria Likely Will Implement the CET by July 
--------------------------------------------- - 
 
7. Awudu Ahmed Gumah, regional coordinator in ECOWAS's 
Department of Trade and Customs Policy, on June 9 told the 
embassy's Economic Specialist he is confident that Nigeria 
will start implementing the CET by July 2005.  Gumah noted, 
however, that this implementation might not incorporate all 
products because Nigeria wants to renegotiate some items but 
has not yet finalized its list of exceptions.  According to 
Gumah, Sierra Leone, Guinea, and Ghana already are 
implementing the CET, although Ghana is doing so piecemeal 
and has said it will renegotiate the tariff on raw 
materials. He noted the ECOWAS CET on raw materials is 5 
percent but that Ghana would prefer no duty whatsoever on 
imported raw materials. 
 
8. Gumah also said the Manufacturers Association of Nigeria 
(MAN) had complained to the GON about the CET's treatment of 
raw materials, and he said discussions continue between the 
GON and MAN. (Begin comment:  On June 10, MAN's acting 
Director General Jide Mike confirmed to the Lagos 
consulate's Economic Specialist that the two sides had not 
yet reached an agreement, and he said that MAN opposes the 
CET's adoption.  End comment.) 
 
9. Gumah additionally told the embassy's Economic Specialist 
that ECOWAS's Department of Trade and Customs Policy 
welcomes the renegotiation of tariffs on items that each 
member state believes it needs in order to aid industrial 
development or to prevent a significant loss of tariff 
revenues.  Gumah said he wants the negotiations to begin as 
soon as possible so that the CET's harmonized implementation 
will begin on schedule after the 2005-07 transition period. 
(Begin comment:  ECOWAS's member states have agreed on the 
CET for most of the types of goods in question.  Only items 
that each member state needs to protect will be negotiated 
under Types A and B.  The implementation of the common 
tariff on some goods will begin prior to 2007 if all ECOWAS 
member states agree to these tariffs.  End comment.) 
 
--------------------------------------------- -------- 
"The CET Will Ruin Our Businesses," Manufacturers Say 
--------------------------------------------- -------- 
 
10. MAN acting Director General Jide Mike said in a January 
press interview that the GON's adoption of the CET would 
have serious implications for Nigerian manufacturers and the 
country's industrial development.  He advocated deferring 
the CET's adoption until 2010 to ensure the GON has in place 
the necessary enabling environment, meaning infrastructure. 
Jide Mike told the press that Nigerian industries face 
infrastructural disadvantages, and that if the GON were to 
reduce tariffs before the necessary infrastructure were in 
place, this would "kill" Nigerian industries.  Because of 
this, he urged the GON to come up with a schedule for 
building infrastructure.  Jide Mike also emphasized that 
Nigeria's monetary policy, exchange rate, interest rate, and 
access to bank credit all remain unfavorable to domestic 
manufacturers.  The MAN official instead recommended the GON 
adopt a zero duty on capital goods, including industrial 
machinery; a 5-percent duty on imported raw materials; a 15- 
percent duty on intermediate raw materials; a 100-percent 
duty on finished products; and import bans on goods for 
which Nigeria has a comparative advantage in production. 
Jide Mike confirmed on June 10 to AmConGen Lagos' Economic 
Specialist that the MAN's position on and opposition to 
Nigeria's adoption of the CET remain unchanged. 
 
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Comment 
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11. The GON likely will seek to implement the CET by the end 
of July 2005.  Although the GON has finalized its "green 
book" on tariffs, the rates' consideration and adoption 
before the end of June and implementation by July 1st appear 
impossible.  This is because the National Assembly is on a 
six-week recess that began May 27.  The MAN's vehement 
opposition to the CET also is an obstacle to the measure's 
timely implementation in Nigeria. 
 
12. Because of President Obasanjo's dexterity in overcoming 
obstacles and achieving his political goals, Nigeria could 
adopt the CET by the end of July if Obasanjo throws his 
political weight behind this effort.  We believe it is more 
likely, however, that Nigeria will make significant progress 
in implementing the CET by the end of 2005 -- but on a 
piecemeal basis. 
 
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Background on the ECOWAS CET 
---------------------------- 
 
13. The ECOWAS CET regime consists of a zero duty on "social 
products" such as medicines, seedlings, and agricultural 
equipment; 5 percent on "products of basic necessity," such 
as raw materials, equipment, and various inputs; 10 percent 
on intermediate goods; and 20 percent on finished consumer 
goods.  Member states can authorize rates differing from the 
common tariffs during the 2005-07 transition period for 
reasons such as protecting a domestic industrial sector, 
existing commitments made to industrial companies, loss of 
tariff revenues, reasons of social policy, bilateral or 
international commitments, and economic policy.  The 
aforementioned exceptions apply through December 31, 2007, 
but otherwise the CET must be applied uniformly. 
 
14. The ECOWAS Council of Ministers recognized that some 
countries authorizing the "exceptional" rates would prefer 
to make these tariffs permanent.  The Council of Ministers 
then agreed that the member states would set permanent rates 
following renegotiations.  In a bid to address the 
distinction between the renegotiated rates and the CET, 
ECOWAS guidelines call for two types of exceptions, Type A 
and Type B, which should form a key part of each member 
state's national report. 
 
-------------------------------- 
Type "A" and Type "B" Exceptions 
-------------------------------- 
 
15. Type A exceptions are tariff rates that at the start of 
the implementation period differ from the CET rates, and 
whose continued application the member state would like to 
maintain for at least part of the implementation period. 
ECOWAS expects that all Type A exceptions will have been 
harmonized by December 31, 2007. 
 
16. Type B exceptions are tariff lines on which the member 
state desires negotiations to change the rate of the ECOWAS 
CET.  All Type B exceptions also must be harmonized by 
December 31, 2007 -- although ECOWAS's Council of Ministers, 
the member states' negotiators, and other parties concerned 
recognize that these Type B exceptions will be difficult to 
harmonize even over the long term. 
 
CAMPBELL