ANALYSIS OF INTRA-INDUSTRY TRADE IN AGRICULTURAL PRODUCTS BETWEEN NIGERIA AND PARTNER NATIONS WITHIN THE ECONOMIC COMMUNITY OF WEST AFRICAN STATES (1979-2008)

CHAPTER ONE

1.0                                                       INTRODUCTION

1.1       Background Information

Sequel to the call by the Organization for African Unity (OAU) heads of state summit  on  all  its  member  states  to  form  regional  groupings  for  the  purpose  of accelerating their economic development, the treaty establishing ECOWAS was signed in Lagos Nigeria, in 1965. The overall objective of ECOWAS integration arrangement was to derive the benefits of co-operation which could be economic, political, and or social. Trade co-operation objective was to expand the volume of intra-community trade following the removal of both tariff and non-tariff barriers to trade on goods originating from member countries. However, intra-ECOWAS trade flows have remained very low. The trade liberalization process was expected to be implemented through such interventions like free international trade, common external tariff wall, consolidation or freezing of custom duties, and non-tariff barriers to intra-trade. Others include gradual phasing out of duties on industrial products from community projects over a period of 6-

10 years at 10-16.6% annual rates of reduction depending on the classification of member states based on the level of development, location and importance of customs revenue.

In addition to the above measures, enabling institutions were established by the Community. These include the West African Clearing House (WACH) to handle most of the financial transactions under the ECOWAS trade liberalization scheme; the ECOWAS bank (ECOBANK), a commercial bank with branches in at least 5 capitals within the Community and the capacity to operate on convertible currencies; ECOWAS Monetary Co-operation Programmme designed to improve and strengthen the WACH mechanism in facilitating increased intra-Community trade and payments transactions. In the short- term, this would be achieved through greater use of national currencies. The medium- long-term objectives are to issue a common convertible currency and to create a single monetary zone (ECOWAS, 1994). This body has now created the West African Unit of Account (WAUA) to facilitate payment and currency convertibility within the Community; The Fund for Co-operation, Compensation and Development to mobilize financial  resources  for  the  implementation  of  Community  projects  and  to  supervise

compensation to member states for approved losses of revenue sustained in pursuit of trade liberalization; an inter-state Road Transit of Goods Regime for the purpose of facilitating the movement of goods by road (ECOWAS, 1994).

In export and import list of the United Nations Harmonized System (HS) classification scheme codes, sections and chapter headings, there are 22 product sections; four among which  deal  with  agricultural  products  NBS,  (2008).  These  include,  live animals  and  animal  products  of  HS  code  01,  chapters  1-5;  the  vegetable  products category consisting of HS code 02, chapters 6-14; the Animal and Vegetable fats and oils and other cleavage products that come under HS code 03, chapter 15; the prepared food stuff category comprising HS code 04, chapters 16-24 (NBS, 2008; ECOWAS, 2008). So, if Nigeria exported agricultural products to the United Kingdom and imported high- tech goods from them, inter-industry trade has occurred, but if Nigeria exported and imported vegetable products from Ghana, the trade is said to be intra-industry because, all vegetable products are classified into the same product section by the United Nations Harmonized System of Trade Classification. It is hypothesized that in a situation where the pattern of trade reflects comparative advantages based on dissimilarities of economic structures, the scope for intra-trade is limited in relation to that in which there is also trade based on similarities of factor endowments. Put differently, the scope and rate of inter-industry trade expansion are augmented by intra-industry trade which reflects a similarity of economic structures. Both exist side by side as major components of international trade. The study is therefore concerned with horizontal intra-industry trade in agricultural product subsections i.e. simultaneous exports and imports of different varieties of agricultural products.

1.2     Problem Statement

The promotion of intra-trade was predicated on the danger posed by the protectionist measures adopted by the developed countries. Indeed, in spite of the various trade negotiations, particularly under the auspices of the General Agreement on Tariff and  Trade,  the  European  Union  (the  largest  importer  of  West  African  products) maintained an average tariff of 9.8 per cent on imports from developing countries up to the Uruguay Round of negotiations in 1994. To worsen matters, developing countries in whose markets exports of manufactures from other developing countries were likely to be

initially  competitive  also  impose  restrictions  on  certain  types  of  manufactures  and primary products (Amsden, 1976). For instance, the tariff rates on imports of primary and manufactured   products   adopted   by   a   selected   number   of   developing   countries respectively ranged from 30.2 and 36.3 per cents in 1984-88 to 24.7 and 27.3 per cents in

1991-94. It was the scenario that necessitated the formation and proliferation of trade co- operation agreements among developing countries to take advantage of their enlarged markets. In the same spirit, ECOWAS was formed in 1975 to create an environment conducive to rapid economic development through co-operation in trade, industry, monetary, financial as well as socio-economic matters.

However, intra-ECOWAS trade flows have remained very low to date Foroutan and Pritchett, Ogunkola, (1993; 1995; 1998). Explanations for low performance include the inability and/or the unwillingness of member states to carry out trade liberalization measures and limited potential for trade expansion. Though, Stone (1997) had maintained that the determinants of intra-industry trade are industrial based and regional characteristics, few studies seem to sought to determine the effects of national and partner characteristics such as nominal GDP, per capita GNI, size (population), household and government final consumption expenditures, foreign direct investment (FDI) among other factors,  on  intra-industry  trade  in  agricultural  products  within  the  sub  region.  Also Grubel-Lloyd (1975) evaluated index of intra-industry trade, but few studies seek to predict the effects of national and partners’ characteristics on intra-industry trade indices of agricultural products within the sub region. Which national and or partner characteristics are responsible for the intra-industry trade indices in agricultural products and subsections? In which agricultural products are there simultaneous exports and imports? What are the shares of intra-industry trade in total agricultural trade? What are the effects of national and partner characteristics on intra-industry trade indices?  These gaps were what the study aimed at filling.

1.3      Objectives of the Study

The broad objective of this study was to empirically assess intra-industry trade in agricultural products within the ECOWAS sub-region. The specific objectives were to:-

(i) review Nigeria’s merchandise trade.

(ii)  assess  the  simultaneous  exports  and  imports  of  agricultural  products  by partner nations within ECOWAS;

(iii) evaluate the share of intra-industry trade in the different agricultural products trade among the partner nations within the sub-region;

(iv) determine the effects of national and partners’ characteristics on the intra-industry trade, and

(v) draw relevant trade policy recommendations.

1.4       Hypotheses of the Study

The following null hypotheses were tested:

(i) national and partners’ characteristics do not significantly influence intra-industry trade indices in the agricultural products; and

(ii) national and Partners’ characteristics do not significantly influence intra-industry trade indices in agricultural product subsections.

1.5       Justification for the Study

This study explored the existence of intra-industry trade in agricultural products within the ECOWAS sub-region. It was geared towards testing empirically the Grubel- Lloyd indices of trade against the major Nigerian (national) and partner nations’ conventional characteristic determinants of intra-industry trade. The study was an exploratory step in ascertaining the extent, indices and factors influencing intra-industry trade in agricultural products within the ECOWAS. This would form a formidable guide to ECOWAS members and national governments on the formulation and development of appropriate policies, particularly as it concerns agricultural products trade. More so, the ongoing debate on Economic Partnership Agreement between ECOWAS and the EU requires the identification of traded products within the sub-region, whose market should be sustained to expand the intra-community trade and deepen the region’s integration. This would aid in proffering policy measures aimed at fostering intra-industry trade in the agricultural product in general and product sub-sections in particular. The findings of this study would favor ministries of agriculture, consultants, ECOWAS secretariat on the products to be regarded as “sensitive” products, whose close substitute from the EU should not be granted free import tariffs, when the economic partnership agreements

between ECOWAS and the EU goes into effect. This study no doubt would encourage other students to develop interest and insight in intra-industry trade theory and engage in further studies in the area.

The significance of ECOWAS member nations exporting to, and importing from others in the light of growing need for regional integration and at a stage when most ECOWAS countries are opening up their markets under the pressure of International Monetary Fund (IMF) and World Bank (WB) cannot be over emphasized. Supposedly, in Economic Community of West African States, there are many agro-industries producing different varieties of live animals and animal products; vegetable products; animal and vegetable fats and oils; and prepared foodstuffs in the agricultural sub-sectors of the economies of partner nations, thereby making it a reasonably concentrated industry with the features that are prerequisites for intra-industry trade to occur. More so, producing a greater variety of goods increases the general knowledge about its technology and implies smaller costs of knowledge accumulation. For instance, Nigeria’s exportation and importation of products of prepared foodstuffs, among others from Benin, Cote d’Ivoire, Ghana, Togo, etc; will likely lead to improvements in these countries’ products. Just as US importation of Japanese car and trucks has led to improvements in US car and truck manufacturing. Therefore, a study of the existence of intra-industry trade in agricultural products among ECOWAS trading partners is worthwhile.

1.6  Delimitations and Limitations of the Study

The study carried out was delimited to the period 1979-2008. The coverage of the trades  were limited to Nigeria’s partner nations based on National Bureau of Statistics foreign trade data, of the major suppliers of Nigeria’s imports which included Benin, Cote d’Ivoire, Togo, and Ghana; and the major buyers of her exports, Ghana and Cote d’Ivoire among others. However, coverage of agricultural products and product subsections was not only delimited to where they were recorded, rather instances of simultaneous exports and imports formed the major consideration among the recorded trades assessed.  Limited information on unrecorded trade flows made official statistics on the identified products inaccurate. Financial constraints were a major limitation. However, these constraints were surmounted through assessment of trade values recorded

by the  National  Bureau  of  Statistics  (NBS),  and  financial  assistance  from  relations, friends, and informal loans.

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