WITHOUT EPA, NIGERIAN COCOA PROCESSORS LOSE MILLIONS AS EU IMPOSES TARIFFS

Two months after losing preferential access to EU markets, Nigerian cocoa processors and producers face millions of dollars in losses, as the effects of poor infrastructure and high operating costs are compounded by higher tariffs and competition from neighbouring countries that retained duty-free access to Europe.

Brussels slapped tariffs on cocoa products and other exports from Nigeria at the beginning of this year, staying true to its warnings after the West African country decided not to sign an economic partnership agreement with the EU by the end of 2007. All but a few of the 30-odd relatively richer members of the African, Caribbean, and Pacific group of countries, faced with the loss of the same trade preferences, signed EPAs with the EU late last year, thus preserving market access. Least-developed countries retained wide-ranging duty-free access under the EU’s ‘Everything but Arms’ initiative.

Unlike the other states that declined to sign EPAs, Nigeria engages in significant volumes of trade with Europe, and has neighbours – Ghana, Cote d’Ivoire, and Cameroon – that did sign deals guaranteeing that their own exports would face lower tariffs in the EU market.

The EU said it would have no choice but to impose tariffs on countries like Nigeria, or it would be open to litigation at the WTO (presumably from non-ACP Latin American nations irritated that others were getting preferences beyond an end-2007 deadline set by the WTO). Critics argued that Brussels was exaggerating: WTO cases can take years, and a framework to conclude an accord within a fixed future timeframe might well have been deemed sufficient to satisfy the global trade arbiter’s unclear and untested rules for bilateral free trade agreements.

It was relatively easy for Nigeria not to sign an EPA last year given that oil - by far its greatest export - never wants for takers.

The cocoa trade, however, is not a sellers’ market, despite rising prices: if cocoa from Ghana is less expensive, European chocolate makers will buy it instead of the Nigerian equivalent.

Thus, the Cocoa Processors Association of Nigeria, or COPAN, announced in mid-January that their survival was under serious threat.

“The fact is that 90 per cent of Nigerian processed cocoa and raw cocoa go to the European market,” Felix Oladunjoye, COPAN’s national secretary, told Ghana’s Daily Guide newspaper last month. “Before the end of March 2008, not less than $5m would have been lost by processors.” He said that cocoa processors had already lost nearly $2 million since the beginning of the year.

For several years the EU has had standard import tariffs of 4.2 percent to 6.4 percent on cocoa butter, cocoa liquor and cocoa cake. Under the trade preference scheme, Nigerian cocoa did not face these duties. Now it does, while cocoa from Ghana and Cote d'Ivoire does not. According to COPAN, this represents losses of close to $6 per tonne for Nigerian cocoa processors. Extended to the total average export capacity of nearly 60,000 tonnes per week, this would mean $360,000 in losses every week, potentially crippling the industry. For products such as cocoa butter, Oladunjoye said Nigerian processors received only $5,840 per tonne while their competitors in countries with EPAs were getting $6,100, reports the Vanguard, a Nigerian daily.

Oladunjoye blamed the losses on the Nigerian government's refusal to enter an EPA with the EU, since such a deal would have shielded Nigerian cocoa exporters from tariffs and kept them on equal footing with their competitors in neighbouring countries.

COPAN has appealed to the Nigerian government to soften the blow of its refusal to sign an EPA by restoring Export Expansion Grants (EEG) to cocoa processors. These grants are an export promotion incentive that offsets 30 per cent of production costs incurred by exporters due to poor infrastructure.

Oladunjoye called on the government to restore these grants dating back to 2005-06 in order “to forestall the collapse of the industry.” Rising diesel costs are putting further pressure the slim margins of cocoa processors in the country.

The EPAs, designed to replace unilateral preferences with two-way liberalisation between the EU and some of the world’s poorest countries, have met with much criticism. Civil society groups and development campaigners have warned that prematurely opening up markets to a flood of EU imports could destroy fledgling industries, undermining their prospects for growth. Free traders worried that consumers in ACP countries would end up buying goods from the EU rather than cheaper ones produced elsewhere but kept out by high tariffs. Brazil has warned that the agreements might even hurt South-South trade (see BRIDGES Weekly, 20 February 2008).

Instead of leading to economic integration within the Economic Community of West African States (ECOWAS) and trade liberalisation between the bloc as a whole and the EU, the EPA negotiations saw the West African group splinter just before the end-2007 deadline. Ghana and Cote d’Ivoire scrambled to sign individual deals to protect their market access, while Nigeria did not. And although Nigerian oil exports continue unimpeded (by tariffs, at least), smaller, non-extractive industries are facing the squeeze.

ICTSD reporting; “EU Clamps Down on Nigerian Cocoa,” DAILY GUIDE, 24 January 2008; “Nigeria Unpaid N14bn Grant Threatens Cocoa Industry,” DAILY TRUST, 29 November 2007; “EPA: Cocoa processors may lose $5m, says COPAN,” VANGUARD, 22 January 2008.