MANAGING THE CHALLENGES OF WTO PARTICIPATION: CASE STUDY 32
Import Prohibition as a Trade Policy Instrument: The Nigerian Experience
Ademola Oyejide, A. Ogunkola and A. Bankole*
Opinions expressed in the case studies and any errors or omissions therein are the responsibility of their authors and not of the editors of this volume or of the institutions with which they are affiliated. The authors of the case studies wish to disassociate the institutions with which they are associated from opinions expressed in the case studies and from any errors or omission therein.
I. Trends in import prohibition
From the mid-1970s onwards, Nigeria’s main trade policy instruments shifted markedly away from tariffs to quantitative import restrictions, particularly import prohibition and import licensing. As a reflection of this shift, Nigeria’s customs legislation established an import prohibition list for trade items and an absolute import prohibition list for non-trade items. While the trade list covers the full range of agricultural and manufactured products, the non-trade list relates to goods and services that are considered to be harmful to human, animal and plant health, as well as public morals. Typical examples of products which feature on this second list include weapons, obscene articles, airmail, photographic printing paper, base or counterfeit coins and second-hand clothing. Furthermore, the customs legislation empowers the government to modify these lists at its discretion, by adding or subtracting items through customs and excise notices and government announcements.
Based on this legislation, the government placed seventy-six broad groups of import items on the import prohibition lists in 1978. The number of items placed under import prohibition increased further, particularly during 1982-5. Hence, at the beginning of 1986, roughly 40% of agricultural and industrial products, in terms of tariff lines, were covered by import prohibitions. This sharp increase in the coverage of import prohibitions abated somewhat during the second half of the 1980s; by 1989, import prohibition covered about 29% of agricultural products and 20% of industrial products measured, again, in terms of tariff lines (GATT 1991).
Although particular items moved in and out of the import prohibition lists over the next ten years, the general trend in reduction in the number of items whose importation was prohibited was broadly sustained. Hence, by 1998, only 127 (out of 5, 147 tariff lines, or 2.5%) remained on the import prohibition list for trade. But with effect from late 2001 and continuing until early 2004, another upsurge in the number of items placed under import prohibition has occurred. In particular, the number of broad product groups under import ban rose from twenty-seven in February 2003 to thirty-five in January 2004.
In terms of sectoral coverage, import prohibition has focused on such agricultural products as fruit, vegetables, grains, meat and fish, as well as manufactured products including rubber, wood and cork, textiles and chemicals. In 1989, for example, close to 96% of the tariff lines for textiles and clothing were subjected to an import prohibition regime, with similar coverage ratio for several other sectors being as follows: furniture (93%), wood and wood products (45%), rubber (5%) and chemicals (1%) (GATT 1991). During 1982-5, the import prohibition coverage ratio for food, beverages and tobacco was over 50%.
The pervasive use of import prohibition as an instrument of trade policy in Nigeria derives from a long-standing import policy regime which was designed to promote industry, employment and balance-of-payments objectives in the context of an import substitution-industrialization strategy (Oyejide 1975). Key elements of this regime include protecting existing domestic industries and reducing the country’s perceived dependence on imports, while at the same time ensuring the availability of raw materials and capital goods which cannot be obtained from domestic sources. With specific reference to the agricultural sector, trade policy has generally been aimed at discouraging importation of all food and raw materials that the county is deemed to have the resources to produce. In the case of the manufacturing sector, a major goal has been to increase the local content of Nigerian industrial output through enhanced use of local raw materials. The achievement of this goal is promoted by the government through various measures and incentives, including import prohibition.
Sectoral coverage of import prohibition has obviously varied over time. But it has been determined largely by the general policy that imports of certain products could be prohibited either if they are judged to be ‘not essential’ or when they compete with domestically produced goods that are available in adequate quantities.
The various motivations for using import prohibition have, however, not been fully reflected in the justifications periodically offered by the government when import prohibition notices are issued. For instance in April 1982, when a wide range of products was placed under import prohibition, the Nigerian government notified the General Agreement on Tariffs and Trade (GATT) of the measures taken with the claim that the measures had been necessitated by unfavourable external circumstances, including a deterioration in the terms of trade and sharp declines in the country’s oil revenue and foreign exchange reserves. But import prohibition was periodically used for other purposes. The almost permanent ban on the importation of textile and clothing products since the late 1970s can be explained primarily in terms of protecting local industries; while import prohibition applying to such items as gypsum, kaolin, bentonites and barytes reflects attempts to promote local sourcing of raw materials for manufacturing in Nigeria. Thus when in March 1998 Nigeria notified the WTO Committee on Safeguards that the import prohibitions on wheat flour, sorghum, millet, gypsum and kaolin were imposed for safeguard reasons, there was credible reason to question the claim.
The pervasive use of import prohibition in Nigeria has another, perhaps equally important, reason: it is administratively easier. In Nigeria’s responses to the questions raised on this matter during discussions at various GATT and WTO fora, it has been argued that import prohibitions are easier to monitor than price-based measures, since the presence of the banned products on local markets is, in principle, sufficient for enforcement.
II. Local and external players and their roles
It is well established that any trade policy change is likely to generate both winners and losers, even if the overall net impact is positive. Economic agents and other stakeholders involved with, or affected by, any trade policy change can be classified broadly into two groups; they are either local (domestic) or external (foreign). Each of these broad groups can be broken down into more specific interest groups, such as producers, importers, exporters, traders, workers and consumers. With specific reference to the import prohibition policy in Nigeria, local stakeholders range from the policy-making and enforcement agencies through producers of the banned imports and their workers to the importers and consumers of banned products.
On the external front, direct stakeholders include countries whose export products are denied market access in Nigeria as a result of the import prohibition policy, as well as regional and multilateral institutions (such as the Economic Community of West African States (ECOWAS), the IMF, the World Bank and the WTO) which exercise policy surveillance mandates in this area.
In capturing the perceptions and views of local and external players directly involved in and affected by Nigeria’s import prohibition policy, primary reliance has had to be on published official documents and the print media. Given the period over which the policy has been tracked, interviews would have focused too narrowly on more recent events and be biased by the possibility of perception, revision and rationalization. In addition, interviews may not yield useful results, as officials of government and quasi-government agencies in Nigeria are often unwilling to go on record with views that may be critical of current public policy posture.
Local players back to top
Among local players, the government and its agencies have played a prominent role in the initiation and sustenance of the policy of import prohibition. Much of the local opposition to import bans has generally been voiced by importers and traders. The consumers who ultimately bear the burden of the resulting higher prices and poor quality and limited variety of locally produced alternatives have remained largely silent, probably because they have not been organized. By contrast, the producers of import-competing goods and their employee unions have generally supported import bans.
On the side of government, policy statements and policy actions with respect to import prohibition have not always been synchronized and consistent. In particular, the apparent and often repeated decision to move away from the use of quantitative trade restriction measures has not been implemented in practice. In the 1970s, of course, policy statements and actions reflected the same restrictive trade policy posture. Thus, Roland Adeleye, Federal Commissioner for Industries, correctly reflected both policy and action when he stated in 1977 that ‘the federal government will not import into Nigeria anything that is produced in adequate quantity by Nigerian industrialists’ (Nigerian Tribune 1977).
Divergence between policy statement and policy action has been particularly strong since the late 1980s. For instance, in a policy statement submitted to the WTO by the Nigerian government in 1998, it was indicated that ‘the list of items removed from import prohibition…. continues to lengthen’ (para. 14), and that ‘necessary steps are being taken by government to comprehensively eliminate all existing items on the import prohibition list as soon as possible’ (para. 17). Along the same lines, President Olusegun Obasanjo’s foreword to the Trade Policy of Nigeria (Federal Ministry of Commerce 2002) envisages a ‘dynamic trade reorientation which will signify a clear departure from past regimes of controls and intervention’. Furthermore, this document affirmed that ‘government shall, within the limits of its rights and international obligations and agreements, strive to eliminate quantitative trade measures’ (p. 10). In practice, however, import bans actually increased in scope and coverage until 2004.
This policy had several negative effects as far as the importers of and traders in a wide range of products on the import prohibition list were concerned. Thus, the Refrigerator and Air Conditioner Dealers Association (RADA), in its statement, ‘condemned the ban on importation of these products because it would lead to substantial losses of income and jobs, and further aggravate the unemployment situation’ in Nigeria (Guardian October 2001). Similarly, the Motor Dealers Association of Nigeria (MODAN) issued a statement which argued that ‘the ban on used vehicles would destroy four million jobs’ (Guardian December 2001). In the same vein, the Embroidery Lace Dealers Association of Nigeria (ELDAN) claimed that ‘an immediate enforcement of the ban on importation of textiles would inflict colossal financial loss on textile imports and eliminate three million jobs’ (Guardian March 2004).
The domestic producers of banned imports and the workers’ unions associated with them not only generally lobby government to impose and maintain its import prohibition policy but also articulate its advantages. Thus, in its reaction, the National Association of Cottage Industrialists of Nigeria (NACIN) urged the government to ‘ensure strict implementation of the ban on imported products as a means of guaranteeing the survival of small and medium-scale enterprises and to create employment for the nation’s teeming graduates’ (Guardian February 2004). In the statements of the Manufacturers Association of Nigeria (MAN), this point of view was pushed further by ‘proposing a minimum lifespan of five years for the current import restrictions policy as a means of ensuring that it achieves the desired results’ (Guardian March 2004). Finally, the National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGWN) ‘considered the textile ban as the best development in the textile industry in recenttimes because of its beneficial impact on local output and employment’ (Guardian April 2004).
External players back to top
The key external stakeholders that have played active roles in the discussions surrounding Nigeria’s import prohibition policy include several countries whose exports have been directly affected and a number of multilateral organizations. Between 1980 and 1991, at least three countries lodged formal complaints against Nigeria with respect to import prohibitions: Norway submitted a complaint on Nigeria’s import ban on stockfish, Côte d’Ivoire on the import ban on textiles, and the United States on the import ban on wheat and rice. While both Norway and the United States cited violation of GATT rules in their complaints, Côte d’Ivoire’s case rested on a violation of the ECOWAS treaty. These complaints were settled through bilateral negotiation and consultation. More recently, both the European Union (EU) and Benin have raised issues with Nigeria with respect to its import prohibitions. Speaking on behalf of the EU, Claude Maerten, an official of the EU Trade Directorate-General, argued that ‘Nigeria’s import ban was not compatible with, and indeed forbidden by, WTO rules’ (Guardian July 2003). In the case of Benin, the country’s ambassador, Benoit Adekambi, issued a statement in which he claimed that ‘Nigeria’s import bans, particularly on textile products, had dealt a severe blow to the economy of the Republic of Benin’ and ‘constituted a violation of the Memorandum of Understanding between the two counties regarding continuous trade liberalization’ (Guardian November 2003).
The three multilateral organizations which have expressed views on Nigerian import prohibition policy can be classified in two categories. In one of these are the World Bank and the IMF, while the other consists of the WTO. Both the World Bank and the IMF have only an advisory role with respect to trade and other policy matters in Nigeria. It is in this context that both organizations encouraged the liberalization of Nigeria’s policy regimes.
The resurgence of import prohibition represents a sharp reversal of the trade liberalization programme initiated in the mid-1980s with the support of the IMF and the World Bank. Both organizations provided technical and policy advice, and the World Bank also provided support through its lending programme. In particular, the World Bank made two quick loans to promote trade liberalization: the Trade Policy and Export Development Loan of US$450 million in 1987, and the Trade and Investment Policy Loan of US$500 million in 1989 (World Bank 1994). Both had as part of their objectives the reduction and eventual elimination of import prohibition. Although these loans were fully disbursed, subsequent evaluations concluded that the import regime reform encountered strong opposition both within and outside the government and that Nigeria had, in general, displayed a poor implementation record and commitment to import liberalization (Castillo 1993). More specifically, the World Bank, in its assessment of Nigeria’s trade policy reform, sketched the following sequence of events (1994: 11-12):
Prior to the introduction of the SAP
[structural adjustment programme], imports were subject to
quantitative controls implemented through a combination of outright
bans on agricultural and manufacturing goods and a comprehensive
Under the SAP, between 1986 and 1988,
import and export licensing was eliminated, the list of prohibited
imports was shortened, and price and distribution controls on
agricultural exports were removed.
As it transpired, the SAP’s attempts to achieve transparency and stability in the incentive system were overtaken by events. The list of banned imports was once again extended so that by 1991, about 20% of industrial imports and 30% of agricultural imports were affected. About 1, 000 of the harmonized system of 5, 000 six-digit imports, furthermore, remained subject to conditional import prohibitions, which could be invoked on the basis of balance-of-payments considerations.
Nigeria’s import prohibitions and their justifications in terms of balance-of-payments problems have triggered many discussions in GATT and then the WTO since the early 1980s. Nigeria first invoked GATT Article XVIII:B on import restrictions for balance-of-payments reasons in 1982. This led to the first consultation with the GATT Committee on Balance of Payments Restrictions in April 1984. In notifying its import restriction measures to GATT in April 1982, Nigeria emphasized their temporary nature. The Committee recognized the serious balance-of-payments problems faced by Nigeria in calling for the introduction of the restrictive measures, but encouraged it to pursue more appropriate economic stabilization policies. Follow-up simplified consultations with the Committee were held in October 1986, October 1988 and March 1991. At these meetings it was noted that in spite of the removal of some of the restrictive measures, several import bans introduced for balance-of-payments reasons remained in force. Finally, in 1996, the WTO Committee on Balance of Payments Restrictions decided that Nigeria’s import prohibitions could not be justified under the balance-of-payment rules of GATT 1994. The consultations in February 1998 discussed Nigeria’s import bans on maize, vegetable oils, barytes and bentonites, as well as plastic articles. Although the consultations closed without agreed conclusions regarding Nigeria’s phase-out programme for the restrictions, members of the Committee stressed, once again, that the import bans were not consistent with WTO rules. Thus Nigeria’s use of import prohibitions as a trade policy instrument has been a source of friction with its trading partners; this practice has also been repeatedly condemned for its inconsistency with GATT and WTO rules.
III. Challenges faced and the outcome
In using import prohibition as a major trade policy instrument, Nigeria has hoped that its balance-of-payments problems would be alleviated, and that the protection offered would induce increased output and employment of the domestic industry. Against these postulated positive outcomes must be set several possible negative consequences of import prohibition, including raising the domestic prices of import-banned products, disrupting other sectors which use the prohibited imports as raw materials, depriving government of tariff revenue and creating vested interests among domestic producers of prohibited products and among smugglers.
Nigeria’s balance-of-payments situation is determined primarily by developments in the world oil market; hence it has not been amenable to changes induced by import prohibitions. In any case, it seems clear that protection of domestic producers is the real force behind the use of this policy instrument. But there is little evidence that it has produced the desired result here either. For instance, a recent study of the textile sector — the single most important target of import prohibition policy of the past twenty years — shows that both its output and employment have stagnated or declined (Oyejide et al. 2003). In addition, a survey of manufacturing-sector performance conducted by the Manufacturers’ Association of Nigeria (1989) does not support the view that the level of capacity utilization was positively related to the degree of local sourcing of raw materials — one of the major channels through which import prohibition was expected to promote increased output and employment.
There appears to be recognition both within government and among producers that the import prohibition policy is rendered virtually impotent by large-scale smuggling and that this has continued in spite of stiff penalties imposed on those involved with the importation, transportation, storage, display or sale of prohibited items. This recognition has not, however, led to the abandonment of the policy. Rather, pressure has mounted to enhance its stricter implementation. According to Moses Gbadebo, president of the National Union of Chemical, Footwear, Rubber, Leather and Non-Metallic Product Employees, ‘it is not enough to say we have banned items, the government’s words must be backed with action…. the law should be properly enforced’ (Guardian January 2004). Similarly, according to Nasir Lawal, president of the National Union of Textile, Garment and Tailoring Workers, ‘if you place a hundred bans and your borders still remain porous, it will only help in increasing the income of smugglers and their agents’ (Guardian January 2004). This concern is, apparently, fully shared by Olusegun Obasanjo, the Nigerian president, who recently accused the Nigerian Customs Service of ‘making nonsense of government’s import prohibition policy’. In frustration, he was reported to have said ‘we just have to beg them. I think other than begging, I don’t know what else I can do. If it is possible to run a nation without customs, I will do it’ (Guardian January 2004).
The apparent reluctance to abandon prohibition policy is reflected in Nigeria’s responses to issues raised during various GATT and WTO discussions on this matter. For instance, during the consultations in 1984, Nigeria pledged to eliminate its import prohibitions quickly. Over time, many of these import bans were indeed lifted, but the policy itself was not abandoned. Following the 1996 decision by the WTO Committee on Balance of Payments Restrictions that Nigeria’s import prohibitions could not be justified under WTO rules, Nigeria offered to eliminate all such measures by early 1997 — only to begin to notify additional ones in 1998. A further proposal was made by Nigeria to phase out all remaining import prohibitions by 2005 under an eight-year elimination programme (WTO 1998). This proposal argued that this period was necessary to allow time for the ongoing customs and port reforms to take root so as to ensure the effective administration of the resulting price-based measures and to allow the economy to consolidate the recent gains in the area of inflation, external reserves, interest and exchange rates. The upsurge in the use of import prohibitions during 2001-4 raises considerable doubt with respect to Nigeria’s commitment to its own import prohibition phase-out programme.
Several lessons can be drawn from Nigeria’s import prohibition policy experience. Perhaps the most general of these is that the coherent and consistent pursuit of good trade policy requires not only a robust and appropriate domestic institutional framework and process for trade policy-making but also a supportive and institutionalized multilateral arrangement for trade policy surveillance. Weaknesses in both of these may be responsible, in varying degrees, for the persistence of Nigeria’s import prohibition policy. Nigeria’s internal trade policy surveillance mechanism consists largely of the domestic framework and trade policy-making process, both articulated at length in the Trade Policy of Nigeria (Federal Ministry of Commerce 2002). However, the country’s actual trade policy-making deviates quite substantially from what this document stipulates. These deviations largely explain the lack of coherence between policy statements and policy actions; this probably also derives from the absence of local ownership of the trade liberalization policy which appears to have been induced by the World Bank-IMF supported structural adjustment programme.
Within the internal trade policy surveillance mechanism in Nigeria, vested interests built around the use of quantitative import restrictions have acquired tremendous powers, and no effective counterweights have evolved over time, perhaps because consumer groups and other civil society organizations are not sufficiently well organized. Furthermore, the mechanism lacks effective feedback systems in the articulation, implementation and evaluation of trade policy. In particular, trade policy initiatives are not routinely subjected to cost-benefit analysis; and no explicit system of monitoring and evaluation is used for modifying or changing trade policies which do not produce desired results efficiently.
Nigeria’s membership of the WTO provides it, in principle, with a strong external trade policy surveillance mechanism. But the role of the WTO as an ‘agent of restraint’ in favour of good trade policy is feasible only to the extent that two important conditions are met. First, the government whose behaviour is to be ‘restrained’ must be committed to good trade policy and thus be willing to tie its own hand and use an external treaty obligation to strengthen its hand against local vested interests. Second, the external agent must have adequate sanctions which it is able and willing to use to punish deviations from the pursuit of good trade policy. Neither of these conditions appears to have been effective in dissuading Nigeria from the continued use of its import prohibition policy.
The basic problems inherent in the framework and process of trade policy-making in Nigeria and its surveillance are not unknown. Some of these are eloquently summarized in a recent statement by Olusola Faleye, president of the Lagos Chamber of Commerce and Industry (Guardian April 2004):
We have no query with the principles of protection, but with the process. We are concerned that the recent import prohibition policy was not preceded by sufficient consultation. Import prohibition…. is a major trade policy decision which requires wide-ranging consultations, capacity surveys and the advice of trade and economic development experts before being pronounced as policy. Sufficient account was not taken of the local capacity vis-á-vis local demand and issues of policy transitions and implications for existing treaties to which Nigeria is signatory.
Any sustained effort to eliminate import prohibitions in Nigeria is unlikely to be permanently successful if it does not first address these underlying problems.
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* University of Ibadan.