The Local Content Act: A breach of Nigeria’s WTO obligations?

Preamble:

his piece is to a large extent, a product of some transactional work and research I was involved in, as an associate at Templars, Lagos and some interaction with a fantastic lady, Liz Whitsitt, the international trade/ investment Law instructor during my LL.M program at the University of Calgary.

Background:

The Nigerian Oil & Gas Industry Content Development Act 2010 (the “Local Content Act”) received presidential assent on Thursday, 22nd April, 2010. Now in operation, the Act seeks to increase indigenous participation in the Nigerian oil and gas industry by prescribing, inter alia, minimum thresholds for the use of local services and materials.

The Local Content Act which derives from the Nigerian Content Policy focuses on the promotion of value addition in Nigeria through the utilization of local raw materials, products, and services in order to stimulate growth of indigenous capacity.

The implementation of this legislation, however, appears to conflict with Nigeria’s “National Treatment Obligations” under the Agreement on Trade Related Investment Measures (“TRIMs”); Article III of the General Agreement on Tariffs and Trade (“GATT”) and the General Agreement on Trade in Services (GATS). This is particularly the case, with respect to preferential treatment extended to Nigerian made goods.

The country is also likely to be in breach in relation to provision to the oil and gas sector, of services in four areas- telecommunications, financial, tourism & travel related services and transportation services inscribed in its schedule, subject to the qualifications stated therein.

Article III of GATT and Annex 1(a) of TRIMs:

The relevant parts of Article III of the GATT provide that the products of the territory of any member of the WTO imported into the territory of any other member shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.

Additionally, the same Article III provides that quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.

TRIMs on the other hand, prohibits any regulation requiring the purchase or use by an enterprise of products of domestic origin or from any domestic source.

The National Treatment Principle and the Local Content Act:

This principle requires a host country to extend to foreign investors, treatment that is at least as favourable as the treatment it accords to national investors in like circumstances. National treatment typically relates to the post-entry treatment of foreign investors.

A look at Article III of GATT suggests that to determine the likelihood of Nigeria being in breach of its WTO obligations, two key terms are necessary for analysis. These are the terms “likeness” and “so as to afford protection to domestic production”. In my view, the implementation Section 12 of the Local Content Act which gives priority to goods made in Nigeria, would amount to a breach of Nigeria’s WTO obligations.

The reasons for this are that the foreign made goods are “like” locally made goods and also, this provision affords protection to those goods made in Nigeria. Arguments similar to the foregoing are also plausible under the TRIMs regime.

Do the Exceptions in Article XX GATT and Article 4 TRIMs Avail Nigeria as a Developing Country?

It would appear that these provisions do not avail Nigeria particularly when one looks at the Chapeau of Article XX of GATT and the fact that Article 4 of TRIMs allows only for temporary deviation and only in circumstances related to balance of payments. The exceptions under GATS would also in my view not avail the country.

Conclusion:

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.