In the recent visit of Director General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala, she stated that the global body is concerned about Nigeria’s multiple exchange rate regime and its impact on international trade.
She said that the “WTO is concerned about foreign exchange, the way we manage it, the way we use it, and how we use it to support manufacturing or imports and exports in our economy.”
Nigeria is able to do this by invoking the balance of payment agreement to be able to conserve foreign exchange.
Under the provisions of Article XII, XVIII: B and the “Understanding of the Balance-of-Payments Provisions of the GATT 1994”, a Member may apply import restrictions for balance-of-payments reasons.
The basic condition for invoking Article XII is to “safeguard the [Member’s] external financial position and its balance-of-payments”.
Article XVIII: B states the need to “safeguard the [Member’s] external financial position and ensure a level of reserves adequate for the implementation of its programme of economic development” as justification for invocation.
Both Articles refer to the need to “restore equilibrium on a sound and lasting basis”.
The Understanding stipulates conditions for provisions of Article XII, XVIII: B whilst Members invoke the provisions.
The conditions are that Members must confirm their commitment to “announce publicly, as soon as possible, time-schedules for the removal of restrictive import measures taken for balance-of-payments purposes” and to explain why if they do not do so; “give preference to those measures which have the least disruptive effect on trade”; justify why price-based measures are not adequate if they have chosen to impose quantitative restrictions; and not to apply more than one type of restrictive trade measure to the same product.
Article XII states that import restrictions “shall not exceed those necessary to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves” or “…in the case of a contracting party with very low monetary reserves, to achieve a reasonable rate of increase in its reserves”.
It is required of Members to progressively relax the restrictions as conditions improve and eliminate them when conditions no longer justify such maintenance.
The Understanding states that restrictive import measures taken for balance-of-payments purposes may only be applied to control the general level of imports and may not exceed what is necessary to address the balance-of-payments situation and must be administered in a transparent manner.
Developing country Members are authorized to give priority to the importation of those products which are more essential in the light of its policy of economic development.
There are provisions for the Dispute Settlement Understanding which may be invoked with respect to any matters arising from the application of restrictive import measures taken for balance-of-payments purposes.
There is room for consultations. A Member applying new restrictions or substantially intensifying existing ones is obliged to consult with the Committee on Balance-of-Payments Restrictions immediately after taking action or before doing so if prior consultation is practicable.
A Member maintaining such restrictions is required to consult annually or biennially.
Consultation may be initiated on the basis of a complaint by a Member adversely affected by restrictions maintained by another, if these are inconsistent with the relevant provisions relating to these restrictions.
Consultation may be full or simplified.
In all cases in which the WTO is called upon to consider or deal with problems concerning monetary reserves, balance-of-payments or foreign exchange arrangements, they shall consult fully with the International Monetary Fund.
In all such consultations the bodies are required to accept all findings of statistical and other facts presented by the Fund relating to foreign exchange, monetary reserves and balance-of-payments.
Nigeria was alerted by the DG, WTO that some member states of the WTO have complained about Nigeria invoking the balance of payment agreement to be able to conserve foreign exchange.
Nigeria should then begin to check her books to ascertain that none of the requirements of the Understanding was violated.
Nigeria should prepare for any of the following outcomes from the prayers of the Complaint Members.
A favourable outcome when the Committee comes to a consensus that the balance-of-payments situation warrants the measures imposed, and that the application of the measures by Nigeria is consistent with the balance-of-payments provisions.
The Committee will request Nigeria to make the necessary adjustments or to dis-invoke the balance-of-payments provisions if the Committee finds that the measures adopted by Nigeria are not being applied consistently with the accepted criteria.
Consultations may terminate without agreed conclusions in a situation where agreement cannot be reached by the Committee.
It is expected that Nigeria starts working on the revelation of DG, WTO and preparing for the outcome ofthe Member’s complaint.