SENEGAL LIFTS SAFEGUARD MEASURE FOR WAEMU OIL IMPORTS, BUT

UNCLAS SECTION 01 OF 02 DAKAR 002114

SIPDIS

SIPDIS
SENSITIVE

STATE FOR AF/EPS - HASTINGS, AF/W AND EB/TPP/MTA
STATE PLS PASS TO USTR - JEFFREY FARRAH
AID/W FOR AFR/WA AND AFR/SD
USDOC FOR 4510/OA/PMICHELINI/AROBINSON-MORGAN/KBOYD
USDOC FOR 3131/CS/ANESA/OIO/DHARRIS/GLITMAN/MSTAUNTON

E.O.12958: N/A
TAGS: ETRD EAGR ECON PGOV EAID EINV IV MY SG
SUBJECT: SENEGAL LIFTS SAFEGUARD MEASURE FOR WAEMU OIL IMPORTS, BUT
DECLARES INCREASE OF REFERENCE VALUE



1. (U) SUMMARY: In response to ongoing controversy surrounding
Senegal's application of a safeguard measure in 2005, President Wade
signed a revised law on July 21, 2006, applying a 25 percent
provisional safeguard tax on refined and palm oils originating
outside the West African Economic and Monetary Union (WAEMU) member
states. Under current law, there is no safeguard measure applied to
imports of other vegetable oils. Importers have accepted the new
measure since most of their oils are imported from Cote d'Ivoire
although they complain of unnecessary complications at the port as
well as a governmental increase in their reference values for palm
oil. The Government of Senegal (GOS) is encouraging domestic oil
producers to modernize their facilities while benefiting from the
protectionist measures. END SUMMARY.

THE NEW LAW
--------------

2. (U) President Wade signed a law on July 21, 2006, applying a 25
percent provisional safeguard tax on refined and palm oils
originating outside the West African Economic and Monetary Union
(WAEMU) member states. The new law, No. 2006-23, annuls previous
law No. 2005-30 that applied the safeguard measure to all imports of
refined, palm and vegetable oils for six years. The new law is now
in compliance with World Trade Organization (WTO) and with the
Uruguay Round Agreement on Safeguards.


3. (U) Law 2006-23, titled "Law on the Application of the Safeguard
Measure on Imported Refined Palm Oils" applies a 25 percent
safeguard tax only to refined palm oil imports from non-WAEMU
countries, not for industrial use, for a provisional period of 200
days. As required by the Agreement on Safeguards, it also calls for
an investigation during the provisional period of whether imported
palm oils pose a serious threat to Senegal's domestic oil
production. Senegal's Ministry of Commerce (MOC) already provided a
preliminary determination of imports' negative impact and will
conduct a more detailed investigation in the future.

DUTIABLE REFERENCE VALUE INCREASED BY 67 PERCENT
-------------- ---

4. (U) The safeguard tax is the second measure, the GOS has
recently taken to protect the domestic cooking oil industry. The
first protectionist measure this year took effect on June 12, when
the President issued a decree increasing the reference value for
imported refined palm oils from 300 CFA francs (CFAF) (USD .37) to
500 CFAF (USD .93) per kilogram (1 kilo equals roughly 1 liter).
Oil importing members of "Union Nationale des Commercants et
Industriels du Senegal" (UNACOIS) expressed outrage at the increase
because GOS did not consult with them in regard to their costs and
failed to provide the transition period mandated by Senegalese law.
In spite of disagreeing with the decree, the transition period would
have allowed them to take the increased costs into account prior to
placing orders and borrowing money from banks to finance
international transactions.


5. (U) Consequently, there are currently 334 containers holding
approximately 6,680 tons of imported refined palm oil blocked at the
port. Importers are unable to come up with the money needed to pay
the increased taxes, storage fees and port penalties. Although the
containers arrived prior to the presidential decree raising the
reference value, importers, without having been informed of the
decree, did not declare the goods until after June 12. The
Senegalese Customs Bureau is demanding that taxes be paid on the new
reference value before the containers are released. UNACOIS leaders
are trying to meet with Prime Minister Macky Sall to discuss the
situation.


6. (U) UNACOIS Secretary General Serigne Ndongo told EconOff that
the GOS established the new reference value because SONACOS had
recently re-valued its imports of non-refined palm oils at 500
CFAF/kg. The government action is based on the logic that refined
oils cannot be worth less than non-refined oils. Both private
brokerage firms and importers are speaking out against the
administration's value declaration, reasoning that it is the
importer's responsibility to declare the value of goods.

COTE D'IVOIRE VS. MALAYSIA: PREVENTING TRANSSHIPMENT
-------------- --------------

7. (U) All Senegalese oil imports must be accompanied by a
certificate of origin. If the Senegalese Customs Bureau of Origins
and Values questions the authenticity of the certificate, the
importer is obliged to pay a consignment tax equal to the safeguard
measure (25 percent) until the certificate of origin is verified to
be imported from a WAEMU country, at which point the consignment tax

DAKAR 00002114 002 OF 002


will be reimbursed. To date, the Customs Bureau has not formally
requested WAEMU to conduct any investigations on the origins of the
imported palm oils, although they are generally wary of transshipped
oils from Malaysia, and tend to give importers an unnecessarily
difficult time in releasing their imported oils in a timely manner.


8. (U) Total taxes on imports of refined palm oils now amount to 65
percent of the reference value. Taxes include: the 25 percent
safeguard tax, a 20 percent common external tariff, an 18 percent
value added tax, and a 2 percent processed goods tax. Importers
fear liquidation of their industry if the reference value is not
reduced. This would undoubtedly have a negative impact on the
roughly 600 people employed in the oil import industry.


9. (U) As reported to the United Nations Commodity Trade Statistics
Database, Senegalese importers have declared greater palm oil
imports from Cote d'Ivoire than Cote d'Ivoire has declared in
exports to Senegal for the same period. Coincidentally, Senegal's
Customs Bureau recorded less in volume and value of palm oil imports
from Malaysia than Malaysia declared in exports to Senegal.
Although transshipment has yet to be officially proved, customs
officials will be watching for increased imports of palm oil from
Cote d'Ivoire during the upcoming year as an indication of Malaysian
transshipments and will be paying close attention to certificates of
origin.


10. (U) In 2005, Senegal recorded 23,960 metric tons of refined
palm oils from Cote d'Ivoire valued at almost USD 14 million and
31,721 tons of refined palm oils from Malaysia valued at USD 17.3
million. Information on exports declared in 2005 by Malaysia and
Cote d'Ivoire is not available.

FOOD SAFETY NORMS: WHO IS THE STATE PROTECTING?
-------------- --

11. (U) The GOS has also begun to apply more strictly Codex
Alimentarius or Food Safety Norms to cooking oil imports since it
reportedly passed a law on October 12, 2005, requiring that all
foreign oil producers meet the international norms. Commerce
Minister Mamadou Diop Decroix, referring to the new law, stated that
3,900 tons of cooking oils have already been refused entry to the
Senegalese market due to quality issues. Customs is required to
take a sample of cooking oil from each shipment for laboratory
analysis to verify the quality. (COMMENT: Whereas some importers
view the claims as a non-tariff barrier, an indiscriminate
application would be a welcome improvement to Senegal's food and
consumer safety standards. END COMMENT.)


12. (U) Diop Decroix has also encouraged all protected oil
companies benefiting from the safeguard measure to invest in
modernization and restructuring in order to become more competitive.
Earlier in 2006, Advens, the private investment group that bought
SONACOS from the GOS, signed a five-year agreement with the GOS to
restructure and to modernize SONACOS facilities, including 4 billion
CFAF, or USD 7.9 million, to address a layoff of approximately 600
workers.

COMMENT
--------------

13. (SBU) The new law while WTO compliant is unfavorable to
importers because of the increased reference value. We believe the
GOS is protecting SONACOS but hurting consumers by subjecting them
to higher prices for a basic good such as oil. This type of
government interference is worrisome as it is unpredictable what GOS
would do in the future in an effort to "protect" SONACOS and the
domestic oil industry.


14. (SBU) An interesting aspect of this debate is that in spite of
its parliamentary majority, the Government lost two key votes in the
National Assembly before the law ultimately passed. SONACOS
employees and Senegalese who want to protect the peanut oil industry
remain opposed to all measures that permit foreign cooking oil to
enter the country. END COMMENT.

JACOBS