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
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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.

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Nigeria Likely Will Implement the CET by July
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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.)

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"The CET Will Ruin Our Businesses," Manufacturers Say
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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
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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.

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Type "A" and Type "B" Exceptions
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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