1.1 Background to the Study
Trade policy is defined as, a government's policy controlling foreign trade and the central objective of trade policy is to provide protection for domestic industries and reduce the perceived dependence on imports; a corollary to that objective was a desire to reduce the level of unemployment and generate more revenues from the non-oil sector.
Non-oil export sector in Nigeria constitutes products of agriculture, industry and services that are exported by Nigeria (Ojowu, 1989). Agriculture is the primary non-oil product sector, which provides food, and fiber for the economy, while industry, as the modern sector, produces manufactured goods. The non-oil export sector of the Nigerian economy, which is dominated by agriculture, played significant roles in the economy before the advent of crude oil. It contributed largely to Nigeria’s Gross Domestic Product (GDP) and it was also the primary source of foreign exchange. The share of non-oil exports in total exports declined drastically from 97.3 percent in 1960 to 42.4 percent in 1970. This later declined to 17.0 percent in 1972 and 3.1 percent in 1981 (Uniamikogbo, 1988). By 1992, it dropped by 1.0 percent to 2.1 percent and in 1994, had a slight increase to 2.6 percent. By 1996, it declined to 1.8 percent. From the mid 1960’s, the significance of crude oil exports increased tremendously and the structure of exports showed notable changes. With the increased flow of oil and declining agricultural commodity prices in the world market, the contribution of agricultural products to total export earnings declined.
The contribution of the oil sector to total exports rose from 2.7 percent in 1960 to 57.6 percent in 1970 and to 97.9 percent in 1992. As at 1997, the percentage share was about the same. Before the 1970’s, agriculture was the pride of the Nigerian economy. During this period, it contributed over 60 percent to the GDP (Famoriyo and Nwagbo, 1981). It also effectively provided employment for over 70 percent of the population and met the food, raw materials and foreign exchange requirements of the country. From the mid 1970’s, the Nigerian economy became monoculture, having shifted from an economy that was dependent on agricultural export to one heavily dependent on crude oil for growth and sustenance. A major development in the export sector in the 1970’s was the oil price shocks of 1973-1974 and 1979, which resulted in large receipts of foreign exchange by Nigeria and subsequent neglect of agriculture.
This was the major cause of the Nigerian’s “Dutch disease”, the consequences of which was the drastic reduction in the competitiveness of Nigeria’s export sector. To boost non-oil export, Nigeria, like many other developing countries, adopted a new trade policy; the IMF/World Bank-sponsored Structural Adjustment Programme (SAP) in 1986. The Structural Adjustment Programme (SAP) marked the implementation of conscious policies and a generous package of export incentives to encourage the production and export of non-oil products, as well as broaden Nigeria’s export market. Underlying the philosophy of SAP is the doctrine of economic liberalization or laissez-faire. The main aim of trade policy is the enhancement of competitiveness of domestic industries, with a view to stimulating local value-added and promoting a diversified export base. Trade policy also seeks (through gradual liberalization of the trade regime) to create an environment that is conducive to increased capital inflows, and to transfers and adoption of appropriate technologies. The government pursued the liberalization of its trade regime in a very measured manner, which would ensure that the resultant domestic costs of adjustment do not outweigh the benefits. The reforms which accompany this policy direction are also aimed at re-orientating attitudes and practices towards modern ways of doing business. However, the instruments of trade...