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Cablegate: Ethiopia: Input for 2007 President's Report On Agoa

VZCZCXRO5006
RR RUEHROV
DE RUEHDS #0773/01 0731230
ZNR UUUUU ZZH
R 141230Z MAR 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 5067
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0005

UNCLAS SECTION 01 OF 04 ADDIS ABABA 000773

SIPDIS

SIPDIS

STATE FOR EB/TPP AND EB/EPS
PASS TO USTR

E.O. 12958: N/A
TAGS: ETRD AGOA PREL PGOV EFIN ET
SUBJECT: ETHIOPIA: INPUT FOR 2007 PRESIDENT'S REPORT ON AGOA

REF: STATE 022438

ADDIS ABAB 00000773 001.2 OF 004


1. Per reftel, Post is providing information for use in the
2007 President's Report on AGOA. Post is also including
information on USG outreach efforts and technical assistance
programs aimed at increasing Ethiopia's participation in
AGOA.

MARKET ECONOMY/ECONOMIC REFORM/
ELIMINATION OF TRADE BARRIERS
-------------------------------

2. Since the early 1990's, Ethiopia has embarked on pursuing
a development strategy based on a mixed economy of both state
and private enterprises. It has eliminated discriminatory
tax, credit, interest rate, and foreign trade treatment of
the private sector, and tried to simplify bureaucratic
regulations and procedures. With USG assistance, important
progress was made in 2004 and 2005 in reforming tax
administration and operations, reducing the number of days to
register a business, and land certification. There has also
been progress in the protection of intellectual property
rights, including a new copyright bill adopted in June 2004.
An August 2005 directive allows private companies to serve as
an internet service provider (ISP) through the government's
backbone infrastructure. Ethiopia had formally applied for
WTO membership in January 2003 and submitted its Memorandum
of Foreign Trade Regime to WTO in December 2006. Further
reforms, particularly in the services (finance and
telecommunications) sector, are expected as a result of the
accession process. However, the state remains heavily
involved in most economic sectors, and parastatal and
party-affiliated companies continue to dominate trade and
industry, hampering full and free competition for the
emerging private sector.

3. Ethiopia's GDP for 2006 is estimated at USD 9.8 billion,
with an annual per capita GDP of USD 130. The economy is
predominantly agricultural, with agriculture contributing 47
percent to the GDP and employing 80 percent of Ethiopia's 77
million people. In 2006, the economy grew by 9.6 percent,
and the inflation rate was 12.3 percent. U.S.-Ethiopian
bilateral trade totaled approximately USD 217 million in
2006. Ethiopia's exports to the United States were USD 81.1
million in 2006, an increase of 31 per cent over 2005. There
are no special barriers to U.S. trade and investment, though
a limited number of sectors continued to remain closed to
foreign investment. In 2005, Ethiopia and the U.S. signed an
Open Skies air transportation agreement.

TRADE LIBERALIZATION
--------------------

4. There are ten excise tax brackets, applied equally to
domestically produced and imported goods, ranging from 10
percent for textiles and electronic products to as high as
200 percent for alcoholic beverages. The current Customs
Tariff of Ethiopia is based on the 2002 Harmonized Commodity
Description and Coding System (HS), issued per the
International Convention on Harmonized Commodity Description
and Coding System Ratification Proclamation No. 67/1993
(ICHCDCSRP N. 67/1993), and deals with the scope of import
duties. The tariff rate was reduced from 230 percent to 35
percent, and the number of official tariff rates (tariff
bands) was reduced from 23 to 6. Ethiopia has also reduced
customs duties on a wide range of imports while all exports
are duty-free. Currently, the government is undertaking a
customs tariff reform.

5. In April 2003, the government established the Ethiopian
Intellectual Property Office under the Science and Technology
Commission to administer trademark, copyrights and
intellectual property issues. In June 2004, the government
passed the Copyright and Neighboring Rights Protection
Proclamation No. 410/2004. The proclamation protects the
rights of copyright owners and associated beneficiaries
(neighborhood rights) for such works as literary, music,
performance, broadcast, photography, software, database and
other published works. The law imposes both fines and
imprisonment on those who infringe on these rights. In July
2006, the government passed Proclamation 501/2006 which
provides for the acquisition of rights and procedures for
registration of trademarks, collective trademarks and well
known marks; duration and renewal of rights; rights conferred
by registration and license contracts, and other
miscellaneous provisions.


ADDIS ABAB 00000773 002.2 OF 004


6. Ethiopia's revised investment code (2002) prohibits
foreign firm participation in domestic banking, insurance and
micro-credit services. The state holds a monopoly in the
telecom sector. Other areas of investment reserved for
Ethiopian nationals include broadcasting, air transport
services using aircraft with a seating capacity of more than
20 passengers, and forwarding and shipping agency services.
Professional service providers must be licensed by the
Government to practice in Ethiopia, and foreign investors
intending to buy an existing enterprise or buy shares in an
existing enterprise need to obtain prior approval from the
Investment Commission. The Ethiopian Government reviews
investment proposals in a non-discriminatory manner. Foreign
investors do not regard the screening process as an
impediment to investment, a limit to competition, or a means
of protecting domestic interests.

7. Disputes arising out of foreign investment that involve a
foreign investor or the state may be settled by means
agreeable to both parties. A dispute that cannot be settled
amicably may be submitted to a competent Ethiopian court or
to international arbitration within the framework of any
bilateral or multilateral agreement to which the Government
and the investor's state of origin are contracting parties.
Ethiopia is not a member of the International Center for the
Settlement of Investment Disputes.

POLITICAL PLURALISM/RULE OF LAW/ANTI-CORRUPTION
--------------------------------------------- --

8. In May 2005, Ethiopia held its third national elections,
in which the ruling Ethiopian People's Revolutionary
Democratic Front (EPRDF) won a third consecutive five-year
term. Opposition parties made an unexpectedly strong
showing, increasing their parliamentary representation from
12 seats to 172. Irregularities, including intimidation of
voters and election observers, marred polling in many areas.
The GOE/EPRDF also announced the "final" election results
before the National Electoral Board of Ethiopia released
them. Some observers reported killings, disappearances,
voter intimidation and harassment, and unlawful detentions of
opposition party supporters. Nevertheless, international
observers, including the Carter Center, hailed the elections
as generally credible and an important development in the
country's efforts at democratization.

9. While the law provides for an independent judiciary, the
judiciary remained weak and overburdened. Some NGOs
perceived the judiciary to be subject to significant
political intervention.

10. The GOE formed a Federal Ethics and Anti-Corruption
Committee in 2001 to investigate ethics and corruption
claims. A 2004 United Nations investment guide to Ethiopia
noted that the private sector reports that routine
bureaucratic corruption is largely non-existent in Ethiopia.
Bureaucratic delays and difficulties certainly exist, but
they are not devices by which officials strive to derive
personal gain. However, other reports differ. For example,
Transparency International ranked Ethiopia 137th out of 156
countries in 2005, and 130 of 163 countries ranked in 2006,
showing no improvement in combating corruption. Ethiopia
tries to combat corruption through a combination of social
pressure, cultural norms, and legal restrictions.

POVERTY REDUCTION
-----------------

11. Poverty alleviation and food security remain priorities
for the government. The 2006/07 government budget
allocations reflect poverty reduction priorities. The
government has decreased military spending from 13 percent of
GDP in 1999/2000, during the border war with Eritrea, to 3.5
percent of GDP in 2005/06, and is redirecting the savings to
poverty reduction and capacity building efforts. (Note:
Figures on military spending related to Ethiopian
intervention in Somalia in late 2006 are not yet available.
End Note.) In coordination with donors, the GOE is
implementing its 2006-2010 Plan for Accelerated and
Sustainable Development to End Poverty in Ethiopia (PASDEP).
In addition to continuing poverty reduction strategies in
areas such as human development, rural development, capacity
building, and food security, the new PASDEP will increase
efforts in commercialization of agriculture, greater private
sector participation in the economy, and scaling-up efforts
to achieve the Millennium Development Goals. Ethiopia is
participating in the enhanced Highly Indebted Poor Countries

ADDIS ABAB 00000773 003.2 OF 004


(HIPC) initiative and received debt relief totaling USD 1.9
billion in 2004/05.

LABOR/CHILD LABOR
-----------------

12. Ethiopia generally enjoys peaceful labor relations. A
new labor law that went into effect in February 2004 and was
amended in June 2006 is generally considered pro-employer by
labor unions. Workers who perform essential services are not
permitted to strike. Most ILO Core Labor Standards have been
enacted into the law; the Ethiopian Parliament ratified ILO
Convention 182 on the Worst Forms of Child Labor in May 2003.
There were laws against child labor; however, the government
did not effectively implement these laws in practice, and
child labor remained a serious problem, both in urban and
rural areas. Under the law, the minimum age for wage or
salary employment is 14 years, which was consistent with the
age for completing primary school; the minimum age for
employment was not effectively enforced, however. Special
provisions cover children between the ages of 14 and 18,
including the prohibition of hazardous or night work. The
Ministry of Labor and Social Affairs is responsible for
enforcing child labor laws, but it did not provide adequate
resources and oversight. While the government made some
effort to enforce these regulations within the formal
industrial sector, social welfare activists, civic
organizers, government officials, and employers agreed that
child labor was pervasive throughout the country,
particularly in agrarian areas and in the informal sector.

AGOA OUTREACH AND TECHNICAL ASSISTANCE EFFORTS
--------------------------------------------- -

13. Though Ethiopia's exports under AGOA remain small
compared with other eligible countries, strong potential
exists in several key sectors. The U.S. Government is
actively working to support Ethiopia's participation in AGOA
through both outreach/promotion efforts and technical
assistance, and continues to actively engage the GOE through
the public-private sector AGOA Technical Committee
established in late 2004. A summary of activities undertaken
during 2006 include the following:

-- Under USAID's "AGOA Plus" program (a two-year export
promotion program providing technical assistance in areas
such as Diaspora coordination, export promotion, trade show
support, and information and communications technology)
various experts in key sectors provided specialized technical
assistance in 2006. Twenty-three companies attended various
trade shows in the U.S., including: seven garment and two
women-owned handicraft companies attending the September 2006
Material World trade show, one honey processing company in
May 2006 in Chicago, 10 textile and garment companies at the
February 2007 Magic Show, and three flower companies at the
March 2006 Miami Flower Show. In addition to gaining
knowledge and experience from the shows, these firms
negotiated significant orders during the trade shows.

-- In April 2006, an expert from the U.S. visited 16
Ethiopian textile and garment companies. The expert assessed
readiness of the companies for export and found that only two
are ready. A one-day workshop was organized and the findings
of the assessment were explained to the companies.

-- In June 2006, training programs on how to develop and best
approach the U.S. market for coffee, garment, textile,
flower, handicraft, and oil seeds exports were organized and
attended by over 50 companies.

-- Ethiopia was approved for AGOA's Category 9 provisions in
2005. In 2006, post worked closely with women-owned
businesses to help them take advantage of Category 9 by
organizing several seminars and workshops. USAID sponsored
representatives of several women-owned hand-loom firms to
travel to the United States to market their goods. Two
women-owned producers are already exporting to the United
States under Category 9, and such exports under AGOA are
expected to expand significantly.

-- Post worked closely with the public-private sector AGOA
Technical Committee to promote both high-level government and
private sector participation in the Forum and to generate
information on AGOA. The AGOA Technical Committee, comprised
of officials from the Ministry of Trade and Industry (MOTI),
the Ministry of Foreign Affairs (MFA), USAID and Embassy
staff, and the Addis Ababa Chamber of Commerce, monthly and

ADDIS ABAB 00000773 004.2 OF 004


serves as a mechanism for exchanging information on AGOA
among key stake-holders and identifying constraints for
businesses that can be addressed through the Committee. Post
used the occasion of the AGOA Forum to host a June 2006 AGOA
Discussion on "Enhancing Ethiopia's Participation in the
African Growth and Opportunity Act." Participants included
prominent government, business, civil society, and media
figures, including the State Minister of Trade and Industry,
and the Secretaries General of the Ethiopian and Addis Ababa
Chambers of Commerce. Discussions focused on addressing
supply-side constraints and establishing linkages with U.S.
firms.

-- In February 2007, post hosted a "USA Booth" at the 11th
Addis Chamber International Trade Fair, the largest trade
fair in Ethiopia. The USA Booth included a one-on-one
counseling corner on AGOA for local companies. Post also
conducted a seminar on "Doing Business with the United
States" on February 27, 2007 which was attended by over 90
companies.

-- Long-term USAID trade advisors have co-located offices
with the Ethiopian Chamber of Commerce and will shortly be
joined by the staff of the Ethiopian Trade Promotion Agency.
YAMAMOTO

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