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Cablegate: Cote D Ivoire 2007 Agoa Eligibility Recommendation

VZCZCXRO5667
RR RUEHMA RUEHPA
DE RUEHAB #1018/01 2761657
ZNR UUUUU ZZH
R 031657Z OCT 07
FM AMEMBASSY ABIDJAN
TO RUEHC/SECSTATE WASHDC 3589
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZK/ECOWAS COLLECTIVE

UNCLAS SECTION 01 OF 05 ABIDJAN 001018

SIPDIS

SIPDIS

State pass to USTR Connie Hamilton
State pass to NSC
State pass to EEB Janet Potash
Commerce pass to Maria Rivero

E.O. 12958: N/A
TAGS: ECON ETRD XA IV
SUBJECT: COTE D IVOIRE 2007 AGOA ELIGIBILITY RECOMMENDATION

REF: SECSTATE 132189


1. Below is the text of Post's Eligibility Recommendation Input as
emailed to EEB Janet Potash and USTR Connie Hamilton October 2nd:

Country: COTE D'IVOIRE

Current AGOA Status: Ineligible, Benefits Withdrawn January 1,
2005

Country Background Summary: Cote d'Ivoire's economy has struggled
since the eruption of political crisis in 1999 followed by a failed
coup attempt in September 2002 that left the country divided between
government and rebel officers until very recently, although the
economic conditions have stabilized somewhat in the past two years.
Despite the economic downturn, the Ivorian economy continues to be
the driving force behind the region's West African Economic and
Monetary Union (WAEMU), and it still comprises up to 40 percent of
WAEMU's GDP. However, the ongoing Ivorian political crisis has
undercut investor confidence and hurt regional trade and overall
output. According to a mid-2007 IMF/World Bank Article IV
consultation, real GDP in 2005 grew by 1.2% and .9% rate in 2006,
propelled by strong oil and gas receipts. However, the World Bank
and IMF estimate that GNP per capita has fallen by 15 percent since
the beginning of the political crisis in 1999, due largely to the 7
percent fall in GDP from 2000-2003 and the scant 4 percent growth
from 2004-2006. The March 4 signing of the Ouagadougou Political
Accord has led to some improvements in the political situation, most
notably the installation of a new coalition government and the
beginning of an identification program designed to address the
disenfranchisement of potentially millions of Ivorians. In June of
2007, the Ivorian Government and the IMF, World Bank and African
Development Bank reached agreement on clearing Cote d'Ivoire's over
$400 million in arrears, paving the way for nearly $240 million in
assistance, ($120 million in IMF budget support and $120 million in
World Bank post-conflict aid). According to the latest IMF and
Ivorian government figures, foreign investment continues to be
stagnant, standing at $164 million in both 2005 and 2006, and is
heavily concentrated in the oil and gas sector.. According to the
Article IV report, inflation remains under control, falling from
3.9% to 2.5% in 2006. U.S. exports to the country rose to US$147
million in 2006, up from $124 million in 2005, according to U.S.
Census figures, while U.S. imports dropped sharply to $755 million
in 2006 from $1.198 billion 2005 (largely due to a sharp fall in
Ivorian oil and gas exports to the U.S.). Overall, Cote d'Ivoire's
current account balance remains strongly positive, with US$8.5
billion in exports and imports of $5.2 billion in 2006, according to
figures from the 2007 Article IV. Cote d'Ivoire retains its
free-market economy. However, companies doing business continue to
face a myriad of challenges. In February 2005, the Department of
State sent a letter to the Government of Cote d'Ivoire (GOCI)
informing it of Cote d'Ivoire's loss of AGOA benefits; this status
has not changed.

Comments on Eligibility Requirements

-----------------------
I. Market-based Economy
-----------------------
A. Major Strengths Identified

Despite the political crisis, Cote d'Ivoire has retained its
free-market economy. The financial and capital markets remain open
and continue to attract domestic, regional and international
capital. Exports of agricultural and other commodities remain
vibrant, and foreign firms continue to do business in those sectors.
The government actively promotes Cote d'Ivoire and is eager to
receive foreign investment. However, companies doing business in
Cote d'Ivoire continue to face difficulties such as glacially-slow
reimbursement of VAT and other taxes to tax-exempt businesses, and
shake-downs by security forces for bribes at roadside checkpoints.
Cote d'Ivoire has removed most non-tariff barriers, including its
protective tax of US$2 per kg on poultry imports, eliminated during
the 2006 holiday period as a benefit to consumers. The ban on sugar
imports has been lifted, although import tariffs have been set at
prohibitively high rates. In January, 2000 Cote d'Ivoire adopted a
lower Common External Tariff (CET) on imports along with the other
seven WAEMU member countries. For non-members, the CET calls for a
5% tariff on raw materials and inputs for local manufacture, 10% on
semi-finished goods, and 20% for finished products.

The GOCI announced plans to liberalize the telecommunications sector
in February 2004. This includes a telecommunications code
encompassing new regulations for the sector, e.g. third party

ABIDJAN 00001018 002 OF 005


access, universal service, and consolidation of existing regulatory
bodies. Draft legislation was sent to the National Assembly in
December 2004, but to date, no action on this has been taken. (note:
the National Assembly's constitutionally defined term expired in
2005. It has not met since September 2006, Due to the political
situation, no elections have been held since 2001)

Cocoa sector reorganization is a top priority of international
lending institutions, which have made future engagement here
contingent on progress in this arena. Cote d Ivoire has pledged to
reduce "parafiscal" export taxes on cocoa as part of its
negotiations with the IMF and World Bank on post-conflict
assistance, and has also agreed to measures designed to
substantially boost transparency related to the use of those
revenues.

-Cote d'Ivoire has several comprehensive investment codes, which
provide non-discriminatory access to foreign investors.

-Numerous private sector business associations are active, including
the American Chamber of Commerce (AMCHAM), the larger French Chamber
of Commerce, and the Ivorian Chamber of Commerce.

-A major benchmark contained in the 2005 notification of
ineligibility was: "improve the business environment by promoting
transparency in rules and regulations, offering nondiscriminatory
treatment of foreign firms and investments, and resolving
outstanding investment disputes with U.S. firms." The Ivorian
government has made notable strides, settling its long-standing
investment dispute with ExxonMobil and with Cora de Comstar (Western
Wireless), both in 2006. ExxonMobil had been subject to 24 years of
repeated court challenges by Centaures Routiers, a French-owned
Ivorian company. The American company paid a $20 million dollar
settlement package to end the case. In late 2006, the Government of
Cote d'Ivoire and Western Wireless came to an agreement in which the
GOCI paid $6 million to the company in exchange for a mutual end to
litigation and a pledge to avoid future litigation over their
long-running dispute.

B. Major Issues/Problems Identified

Another USG benchmark cited in the notice of ineligibility calls for
GOCI efforts to "institute transparent and consistent rules in the
cocoa sector and promote fair and non-discriminatory application of
taxes, fees, and export regulations in the cocoa sector." Cocoa
exports generate more than US$2 billion, or nearly 20% of total
export revenue, according to the 2007 World Bank/IMF Article IV
study. While various parastatal cocoa authorities have grown in
size and burdened cocoa farmers (the vast majority of whom are poor
smallholders) under President Gbagbo, the government and the
quasi-governmental cocoa regulatory bodies set up during the 1998
deregulation have agreed to reduce "parafiscal" levies on exports
and boost overall transparency in the management of the industry.
Negotiations with the IMF and World Bank have been instrumental in
making these strides.

Since 2006, exports of oil and gas have surpassed export receipts
from cocoa and coffee, long the country's top export earners.
International lending institutions and bilateral donors have serious
concerns related to the lack of transparency in these accounts,
concerns which have led to the three audits of the sector as part of
ongoing supervision of Cote d'Ivoire's fiscal controls associated
with the reengagement of the IFIs and the provision of post-conflict
assistance packages. The U.S., along with other large bilateral
donors and the IFIs, strongly support Cote d'Ivoire's implementation
of its 2006 pledge to join the Extractive Industries Transparency
Initiative, as well as adopt other fiscal controls and transparency
measures to ensure proper accounting for these important and growing
revenues.

-Multinational firms are subject to surprise audits by tax
authorities, to a degree they believe firms with close political
ties and affiliations are not.

-Many firms continue to see corruption as an obstacle to doing
business in Cote d'Ivoire, with the greatest impact on procurement,
judicial proceedings, customs and tax bureaucracies and general red
tape.

-Large-scale investments must be approved at the ministerial level.
This must be done through a laborious process of document
preparation and the gathering of stamps of approval from multiple
departments within the ministries concerned.

--------------------------------------------- ----

ABIDJAN 00001018 003 OF 005


II. Political Reforms/Rule of Law/Anti-Corruption
--------------------------------------------- ----
A. Major Strengths Identified

The first benchmark in the notification to the GOCI of ineligibility
required the Ivorian government to "fully implement the
Linas-Marcoussis and Accra III agreements." In addition, it
required the government to "maintain a cease-fire without
exception," and "improve the performance of security forces on
protecting human rights," and that it "hold free and fair elections
as scheduled in October 2005." Elections have not yet been held,
but the belligerent parties in Cote d'Ivoire have signed the
landmark Ouagadougou Political Accord and entered into a coalition
government. The former head of the rebel group that carried out a
coup attempt in 2002 is now the Prime Minister. In addition, the
country is moving forward on the critical mass identification
program aimed at enfranchising the large numbers of persons,
estimated by different groups to be between 300,000 and 3 million,
who lack identity documents. The Ouaga Accord calls for elections
by early 2008, but most observers do not see this as realistic.
The President of the Independent Electoral Commission announced in
September 2007 that elections could be held in or after October
2008.

During the summer of 2005, the Customs authorities launched
campaigns at the Port of Abidjan to curb non-payment of customs
duties and to prevent smuggling of counterfeit or illegal products.
The customs authorities in 2006 installed a small mobile scanner at
the port to supposedly scan 25% of all containers, and have said
they will meet new U.S. requirements for 100% scanning for
U.S.-bound containers. Despite this anti-smuggling campaign, the
government admits that there is less than 50% compliance with
customs duties.

In September 2005, the government's new VAT tax regulations and new
unified commercial invoice went into effect. The new regulations
and new invoice were adopted as measures to prevent non-payment of
VAT taxes. Compliance with VAT regulations is not 100%, but
authorities claim they are making headway. After initial protests
over the new regulations, the government in 2006 began a public
campaign to encourage compliance by small businesses, during which,
in 2007, authorities made the high-profile arrest and expulsion of a
prominent foreign-born Ivorian merchant who complained the
regulations discriminated against businesses owned by foreign-born
Ivorians (his expulsion from Cote d'Ivoire may be a violation of the
Constitution).

B. Major Issues/Problems Identified

Full implementation of the Linas-Marcoussis and Accra III agreements
required the disarmament, demobilization and reintegration (DDR) of
former combatants (including militias) and the creation of
integrated, national armed forces. The Ouagadougou Political Accord
reinforced this DDR mandate. To date, however, little to no
disarmament, reintegration or reinsertion has taken place. Militias
remain armed and dangerous, particularly in the volatile western
region of the country.

The third benchmark contained in the notification of ineligibility
called on the GOCI to "continue to reform and improve the judicial
system" by establishing anti-corruption measures and training
judges. Although the 2000 constitution requires a number of
judicial reforms, these reforms remain blocked, due in part to the
inability to pass such legislation through the National Assembly.

Members of security forces operated with relative impunity. They
frequently resorted to lethal force to combat widespread violent
crime and sometimes beat detainees and prisoners. Pro-government
militias and "youth groups" are equally able to attack the offices
of civil society without restraint. The Government generally failed
to bring to justice most perpetrators of such abuses.

Corruption continues to be a major problem throughout the country,
affecting both firms and private citizens. The greatest impact on
investment occurs in the areas of procurement, judicial proceedings,
customs and tax bureaucracies and general red tape. Cote d'Ivoire
ranks 150 on Transparency International's 2007 list, behind Russia,
Angola, Belarus and Nigeria.

----------------------
III. Poverty Reduction
---------------------------------------

A. Major Strengths Identified


ABIDJAN 00001018 004 OF 005


Close to a third of the 2006 and 2007 budget was dedicated to
spending on agriculture, education, infrastructure, health,
development, the fight against HIV/AIDS and scientific research.
However, many ministries are only beginning to redeploy to the
northern half of the country, leaving much of the population
unserved, despite the formal reunification of the country.

-The GOCI continues to act as an effective partner with the USG's
PEPFAR initiative.

B. Major Issues/Problems Identified

In past years the United Nations had reported that nearly a quarter
of a million children out of a school-aged population estimated at
533,000 were being deprived of school. For the 2004 - 2005 school
year, the numbers of school-aged children living in the northern,
Forces Nouvelles-held areas was estimated by the UN at 550,000, and
379,232 children were enrolled, (up significantly from 2003).
However, large majorities of government teaching staff assigned to
schools in the North did not teach classes, and teachers are only
now slowly beginning to return to their schools. In February 2006,
some 90,000 out of 122,000 eligible test takers in the north sat for
national advancement examinations, as did a similar number in early
2007. In both instances, results were somewhat lower in the North
than those in government-controlled regions (these exams are
essential for children to advance in school and to university).

Additionally, significant numbers of children are denied schooling
in the remote cocoa farming region in the central region and in the
West. Cocoa-growing families often need their children's labor on
the family farms, or in the case of communities of "foreigners"
(transplanted Burkinabe, Malian, as well as their kinsmen from the
northern part of Cote d'Ivoire), lack access to government-provided
schools in their villages. The USG, in collaboration with NGOs,
other donors and the government of Cote d'Ivoire, is implementing
programs to encourage families of school-aged children in
cocoa-growing regions to send their children to school and to avoid
the worst forms of child labor.

The continued deterioration of the overall humanitarian situation in
northern Cote d'Ivoire, particularly in the area of water sanitation
and access to health care, raises serious concern. Most agencies
agree that renewed open conflict would lead to a critical situation
affecting an already vulnerable population.

The World Bank estimates that the poverty rate has increased from 38
percent before the crisis to 44 percent.

--------------------------------------------
IV. Workers' Rights/Child Labor/Human Rights
--------------------------------------------

A. Major Strengths Identified

The Labor Code grants all citizens, except members of the police and
military services, the right to organize and bargain collectively.
Formal sector unions play an active role in negotiating with
employers and in the promotion of worker rights. Strikes are held
frequently, by unions representing workers in both public and
private fields.

Under the Pretoria III Accord, the opposition now has a major role
in the management of Radio Television Ivoire (RTI), and all
political parties now have reasonably fair access to the media.
However, in late 2006, President Gbagbo unilaterally imposed his own
management on RTI as well as the government-owned newspaper
Fraternite Matin.

The Ivorian government adopted by ministerial decree a list of
prohibited "worst forms" of child labor for children under 15 in
agriculture, mining, trade, transportation, handicrafts, and other
sectors. This list closely mirrors the ILO definitions of "worst
forms" and specifically enumerates the types of work prohibited in
each sector.

The government of Cote d'Ivoire is making a concerted effort to
address the concerns surrounding child labor in the cocoa sector in
order to be compliant with IL0 conventions 182 and 138 which the
National Assembly ratified in February 2003, as well as the
guidelines of the Harkin-Engle Protocol, which calls for 50 percent
of the country's cocoa-growing region to be certified free of the
worst forms of child labor by July 1, 2008. To accomplish this
goal, the Prime Minister created a task force that included public
and private sector cocoa interests in 2005 to address the problem of
child labor by implementing a credible certification program in the

ABIDJAN 00001018 005 OF 005


cocoa sector. The task force's efforts were taken up and expanded
in 2006 by a team led by the Minister of Labor, in collaboration
with the Ministry of Agriculture. This organization, working in
concert with international industry, is making strides towards
meeting its child labor goals. The GOCI adopted a National Plan on
Child Labor on September 20, 2007 with the objective of reducing
child labor by 50 percent in 3 years.

B. Major Issues/Problems Identified

-Since the majority of the workforce is engaged in either the
informal sector or agricultural sector, most workers have few, if
any rights or effective leverage.

-Although Ivorian law prohibits forced and bonded child labor,
enforcement institutions remain weak and under-funded.

-In late 2006, pro-government groups attempted to disrupt
identification courts that had been set up to register and
enfranchise those without papers. While opposition youth groups
responded to these attacks by in turn attacking the attackers, no
leaders of the pro-government groups were ever prosecuted.

-In the volatile western region near the Liberian border,
pro-government militias and armed groups associated with the rebel
"Forces Nouvelles" have until recently clashed regularly,
undermining security and contributing to lawlessness. Militias
terrorize local populations, undermining security. Only recently
have authorities from the coalition government made modest strides
in bringing security to the region, and both groups remain heavily
armed and able to disrupt the nation's peace process.

-Harassment and intimidation of the opposition press and civil
society continue, although the environment has improved slightly.
Two prominent human rights groups were attacked and their offices
ransacked with impunity by youth groups aligned with the President's
faction, as was an opposition newspaper. None of the groups'
leaders were prosecuted for these acts.

-Discrimination and violence against women continues and usually
goes unpunished.

-Child abuse and exploitation, including sexual exploitation, occur
often. Trafficking of women and children for the purposes of sexual
exploitation remains a problem. While the government and NGOs
target the practice and work collaboratively to investigate and
target networks, punishments remain insufficient and the
infrastructure to help protect and repatriate victims remains weak.

-Female genital mutilation (FGM) is widely practiced on girls and
young women. NGOs are active in sensitizing largely rural
populations as to the health and psychological risks associated with
the practice.

-Although improved in comparison to past years, the government's
human rights record remains poor.

-Although improved in comparison to past years, the rebel "Forces
Nouvelles" human rights record remains poor.

-Prison and detention center conditions were deplorable.

--------------------------------------------- ----
V. International Terrorism/U.S. National Security
--------------------------------------------- ----

A. Major Strengths Identified

-The GOCI has cooperated with the United States since September 11
to combat terrorism. The GOCI has beefed up its civil aviation
authority, and implemented the International Maritime Organization's
new standards for port security. It has also pledged support on
implementation of relevant Security Council resolutions on terrorism
and terrorist financing. For example, GOCI authorities state that
when they receive notification of a terrorist listing, they conduct
investigations and, if terrorists are found, they act to seize all
assets associated with terrorists or terrorist groups.

B. Major Issues/Problems Identified

-None

NESBITT

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