Saturday, September 1, 2012

Nigeria, local content and WTO law - Issues of compatibility

Local content requirements are pretty much taboo under WTO law.It signifies "protection" to local goods over imported goods and is thus a violation of the national Treatment principle enshrined under the GATT, TRIMS and GATS. Countries violate this provision rarely, and when they do are immediately taken to the DSM by an aggrieved members.

It is in this context that I found the Nigerian Oil and Gas Content Development Act 2010 rather interesting. It explicitly supports the growth of the local industry in the oil and gas sectors in Nigeria. Section 12 of the Act states:
"Subject to section 7 of this Act, the Nigerian Content Plan submitted to the Board by an operator shall contain a detailed plan, satisfactory to the Board, setting out how the operators and their contractors will give first consideration to Nigerian good and services, including specific examples showing how first consideration is considered and assessed by the operator in its evaluation of bids for goods and services required for the project."
This provision, and many other provisions of the above Act seem to run contrary to the National Treatment principle which mandates that imported goods not be treated less favorably as compared to local made goods.This policy was supported by the local oil industry here.A succinct analysis of the Act by Humphrey Onyeukwu is found here.

However, the issue of the compatibility of the Nigerian law with WTO law has been raised here and here. However, no WTO member has challenged this legislation yet at the DSM of the WTO. Is this a matter of time?

Several questions come to my mind:

1. Is the local content requirements in violation of Nigeria's WTO obligations? if so why has there been no substantial challenge to this legislation? Are global business interests and international involvement in the Oil and Gas sector still nascent to necessitate this challenge? Is it a matter of time (when Nigeria's oil and gas industry has international participation) that a WTO challenge will become inevitable?

2. The Nigerian local content policy is restricted now to the Oil and Gas sector. Would the reaction of WTO embers be different if it extended to the economy as a whole rather than these sectors? Would that have prompted a WTO challenge?

3. Nigeria has employed this policy to ostensibly boost it's local economy, jobs and industry. It is part of its industrial policy. This is a clear instance where domestic policy pace, in terms of an industrial policy favouring local content, is in conflict with WTO rules.

4. Would it be justifiable for an LDC or a developing economy to adopt such policies as an aggressive industrial policy? Is it not a fact that the WTO law gives no leeway in matters of local content. As Ayodele Oni concludes in his piece questioning the Act:

"Although further research may suggest an arguable leeway, Nigeria appears to be, prima facie, in breach of its obligations under the WTO particularly as regards the National Treatment Principle. 
It should, however, be noted that a foreign company carrying on business in Nigeria, which feels strongly about these issues would need to take actions under the auspices of its country of origin. 
Where this is done, a Dispute Settlement Body (DSB) may request Nigeria to bring into conformity measures which are inconsistent with its obligations under the WTO. China for example, brought its trade measures into conformity with the DSB’s recommendations and rulings, within 8 months, further to a WTO decision in 2008."
5. Does Nigeria, and other developing countries, have a defense for this legislation? A WTO dispute, will perhaps, have some of these answers.

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