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Cablegate: Ethiopia Agoa Eligibility Recommendation

VZCZCXRO9363
RR RUEHROV
DE RUEHDS #3036/01 2880844
ZNR UUUUU ZZH
R 150844Z OCT 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 8138
INFO RUCNIAD/IGAD COLLECTIVE

UNCLAS SECTION 01 OF 06 ADDIS ABABA 003036

SIPDIS

SIPDIS

DEPARTMENT FOR AF/EPS (POTASH)
DEPARTMENT PASS TO USTR (HAMILTON)

E.O. 12598: N/A
TAGS: ETRD AGOA ECON ET
SUBJECT: ETHIOPIA AGOA ELIGIBILITY RECOMMENDATION

Ref: State 132189

1. Country: Ethiopia
Current Status: Eligible

--------------------------
COUNTRY BACKGROUND SUMMARY
--------------------------

2. After a difficult period of socialist dictatorship and civil war,
the government of Ethiopia (GOE) in the early 1990s began a
transition towards a more open economic system. While government
and ruling party-affiliated enterprises retain a prominent role in
the economy, the GOE also steadily increased the role of the private
sector by liberalizing investment and foreign trade rules, and
accelerating privatization. There are no special barriers to U.S.
trade and investment, although a number of sectors remain closed to
foreign investment.

3. Ethiopia continues to progress towards a more democratic
political system. The elections in May, 2005 were the most openly
contested in Ethiopia's history and gave birth to the country's
first truly multiparty Parliament. Despite some irregularities, the
results of the election were generally credible. Within parliament,
concessions were made in committee leadership profiles and
provisions for questioning executive branch officials in an effort
to accommodate the substantial opposition presence. The opposition
parties in parliament have responded by being vocal representatives
of alternative viewpoints. Outside of parliament, ruling and
opposition parties sought to substantively engage each other through
a process of inter-party dialogue to address fundamental issues of
democratic reform, institution building, and governance. Harassment
of opposition leaders and supporters at a local level in rural areas
continued to persist throughout 2006. 4. While the first half of
2007 was marked by the trial of prominent journalists and opposition
leaders, the Ethiopian government's pardon of most of these
individuals in July 2007 represented a magnanimous gesture and an
opening for further positive political engagement in the second half
of the year.

------------------------------------
Comments on Eligibility Requirements
------------------------------------

5. MARKET-BASED ECONOMY- STRENGTHS IDENTIFIED:
--GOE Promotion of the Private Sector.
--The Prime Minister has stated repeatedly and publiclythat
private-sector-led economic growth is his top priority. The GOE has
embarked on a number of reforms to promote the private sector. This
has resulted in strong economic growth in recent years, particularly
in construction, services, trade and industry.
--Ethiopia has formally applied for membership in the WTO. Ethiopia
submitted a Memorandum of Foreign Trade Regime to the WTO in
December 2006. With technical assistance on WTO accession from a
number of donors, including the USG, substantial progress has been
made in drafting new legislation and in capacity building relevant
to accession.
--The Private and Public Enterprise System Authority has stepped up
the transfer of state owned enterprises to the private sector,
including garment, tannery, cement, blanket and shoe factories.
--In the past years, the GOE also made significant progress, with
assistance from the USG, in reducing the number of days to register
a business from 46 to half a day -placing Ethiopia at the top of
this indicator in the Millennium Challenge Corporation scoring.
--The GOE has initiated capacity-building programs to boost the
competitiveness of local manufacturers and maximize export
possibilities. It has introduced an Export Credit Guarantee scheme
and gives exporters rebates on duties paid on raw materials used to
produce export goods.
--Garment export sector incentives include duty free machinery
imports, low interest loans at easy terms, and assistance in
obtaining land. Pre-inspection of imports has been abolished, along
with all taxes on exports, and the Customs window is now open 16
hours a day.
--International air freight and passenger links have been expanded.
In 2005, Ethiopia and the U.S. signed an Open Skies Treaty. A large
cold storage facility has been built at the Addis international
airport to handle perishable exports and additional cold storage
facilities are under consideration.
--USAID launched a US$ 20 million, five-year Agribusiness and Trade
program in partnership with the GOE in September, 2006. The project
is a market-led effort to increase exports in four key sectors:
horticulture, coffee, leather, and oilseeds/pulses. The program
projects a US450 million increase in exports over the next three
years.
--In 2006, the value of investment permits issued by the Ethiopian
Investment Agency rose by 11 % over 2005. Some 1150 permits in
total to date have been issued to foreign firms, with a registered
capital of US $5.2 billion. Much of this investment has not yet
materialized, but there have been some significant investments in

ADDIS ABAB 00003036 002 OF 006


hotels, textiles, cement, floriculture, horticulture, aluminum, and
construction.
--The Ethiopian investment code guarantees free transferability of
dividends, loan repayments, and capital. It also guarantees
compensation for expropriation. It allows joint ventures in the
electrical energy and telecommunication areas and significantly
reduces the minimum capital requirement for foreign investors. The
Investment Commission now has the authority to provide an expedited,
one-stop service to investors.
--There are no trade treaty issues with Ethiopia, since Ethiopia is
neither a WTO member nor a bilateral trade treaty partner. Economic
relations between the U.S. and Ethiopia are governed by the 1953
Treaty of Amity and Economic Relations. The GOE has expressed an
interest in negotiating a bilateral investment treaty and a
bilateral tax treaty with the United States.
--There are no special barriers to U.S. trade and investment, though
several sectors, such as financial services are closed to foreign
investment.
--The U.S. trade surplus with Ethiopia was US$54.5 million in 2006,
indicating a decrease of US$397 million compared to that of 2005.
While the US$135.6 million in U.S. exports to Ethiopia in 2006 was,
down 73.6% from the previous year, the 2005 level was unusually high
due to significant aircraft sales.. Corresponding U.S. imports from
Ethiopia were US$81.1 million, up 31.2% from 2005, in large part
because of AGOA. In 2005, the U.S. approved Category 9 AGOA
privileges for Ethiopia
--For the first six months of 2007, U.S. exports to Ethiopia were
US$64.3 million and U.S. imports from Ethiopia US$38.3 million,
leaving a trade surplus of US$ 26 million in favor of the U.S.
--In August 2005, Boeing concluded a US$1.5 billion deal with
Ethiopian Airlines for the sale of 10 Boeing 787 aircraft. EAL
subsequently announced it would purchase US$ 330 million in GE
engines for these aircraft. Financing for the deal was secured in
August 2007.
--The following U.S. firms have recently entered joint venture
arrangements with Ethiopian firms:
--American businessman Victor Ozeri and a local entrepreneur, Mrs.
Lily Betry are establishing a garment factory worth $ 3-5 million.
When open, the factory will provide about 1,000 jobs for
Ethiopians.
--RX Africa, a Delaware company, has established a partnership with
an Ethiopian-owned pharmaceutical factory.
--Pacific Link International, has started operations in the real
estate sector. Its start up capital is close to $11 million. The
company is also seeking buyers for AGOA eligible products.
--Ethiopia became a member of the World Intellectual Property
Organization in 1998 but is not a party to any major international
IPR treaty.
--Ethiopia has enacted a series of new laws pertaining to major
areas of intellectual property rights, namely, copyright and related
rights, plant varieties, and trademarks.
--The 2004 comprehensive copyright law improved protection for
literary and artistic works, and extended protection for the rights
of performers, producers of phonograms, and broadcasting
organizations. In 2006, a new trademarks law was enacted which will
bring Ethiopia's trademark law into line with TRIPS.
--In addition, Ethiopia is in the process of developing new laws for
the protection of geographical indications and for data protection.
--The government has consolidated various intellectual property
rights protection offices into one agency, the Ethiopian
Intellectual Property Rights Office, to strengthen enforcement.
--The Ministries of Trade and Industry and Justice are working on a
revised commercial code that would further enhance provisions for
protection of intellectual property.

6. MARKET-BASED ECONOMY- MAJOR ISSUES/PROBLEMS IDENTIFIED:
--The state remains heavily involved in many economic sectors, and
parastatal and party-affiliated companies are frequently favored
with government contracts, to the detriment of the emerging private
sector despite the government's professed backing of private
sector-led growth.
--All land is owned by the state; there is no private ownership.
Ethiopia's administrative regions establish their own land title
certification systems and lease regulations; lease terms may extend
up to 99 years. USAID has been working with regional governments to
improve land registration and otherwise increase land tenure
security.
--Ethiopia has yet to sign a number of major international IPR
treaties, such as: the Paris Convention for the Protection of
Industrial Property; the WIPO Copyright Treaty; the Berne Convention
for Literary and Artistic Works; and the Patent Cooperation Treaty.
--The strict foreign exchange control regime administered by the
National Bank of Ethiopia (the central bank) complicates importation
of goods. An importer must apply for a permit and obtain a letter
of credit for 100 percent of the value of imports before an order
can be placed. Supplier credit is generally not allowed.
--While the banking and insurance sector is open to domestic private
investors, foreign investors may not participate. Joint ventures
with foreign companies are permissible by law in the
telecommunications sector, but in reality the government-owned

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Ethiopian Telecommunications Corporation (ETC) retains a monopoly in
most business areas.
--The government controls all clearing and forwarding operations for
ground transportation of imports and exports.
--Although an August 2005 directive allows private companies to
serve as internet service providers (ISPs), no implementing
regulations have been promulgated and the internet remains a
monopoly of the state telecommunications monopoly ETC.
--Laws prohibiting foreign financial institutions from operating in
Ethiopia restrict competition and reduce quality of service and
competition in the financial sector.

7. POLITICAL REFORMS/RULE OF LAW/ANTI-CORRUPTION- MAJOR STRENGTHS
IDENTIFIED:
--After decades of dictatorship, Ethiopia began in 1991 to move
towards a federal system of governance. The third national
elections in May 2005 were the most open in Ethiopia's history. The
Government implemented a number of pro-democratic reforms leading up
to the election, including amending electoral laws to make it easier
for parties to nominate candidates, providing equal media access to
opposition candidates, and allowing international observers.
--Parliament and parliamentary rules were modified in 2006 to allow
for increased debate and opposition participation. Inter-party
dialogue continues on further reforms to the National Electoral
Board and the legal framework for the media.
--The Ethiopian government is organized on the concept of ethnic
federalism. The GOE has devolved greater power and resources to the
regions and sub-regions--- "woredas" (districts) and "kebeles"
(local councils) -- to implement development plans based on local
priorities.
--Routine bureaucratic corruption is less pervasive than elsewhere
in the region. The latest UN Investment Guide to Ethiopia (2004)
points out that, according to the private sector, bureaucratic
corruption is virtually non-existent in Ethiopia. The guide adds
that bureaucratic delays and difficulties certainly exist, but they
are not generally devices by which officials strive to line their
pockets.
--The Ministry of Justice and the Anti-Corruption Commission are the
Government entities with the primary responsibility to combat
corruption. The Anti-Corruption Commission has arrested many
officials, including managers of the Privatization Agency, Customs,
and the state owned Commercial Bank of Ethiopia, and charged them
with corruption.

8. POLITICAL REFORMS/RULE OF LAW/ANTI-CORRUPTION- MAJOR
ISSUES/PROBLEMS IDENTIFIED:
--While most observers of the May 15 election, including the Carter
Center, reported that election-day polling and tabulation were
generally credible and that the EPRDF won, they also noted that
intimidation and irregularities occurred, and that the results
lacked credibility in a considerable number of constituencies.
Observers from the European Union stated that the elections failed
to meet international standards, but saw them as an important step
forward in the democratic process.
--Despite their unprecedented success at the polls, the opposition
parties rejected the election results. While most opposition
MPs-elect did join parliament, the post-election closure of
political space has caused many Ethiopians to question the
government's commitment to democratic reform and caused many
investors to question the country's political stability.
--Responding to post-election frustration, the Government closed
many private newspapers, charging journalists, publishers, and
editors with capital offenses; closed down most opposition party
offices seizing their records; minimized state-owned press coverage
of opposition parties' activities; and charged those advocating
civil disobedience with crimes against the government.
--Arbitrary arrest and detention, including detention without charge
and allegations of torture, remained serious problems. Authorities
denied detainees access to counsel or family members.
--Security forces killed demonstrators and beat or mistreated
detainees with impunity.
--The judiciary is weak and overburdened. According to the
Constitution, accused persons have the right to a public trial by an
ordinary court of law within a reasonable amount of time. However,
lengthy pretrial detention is common, closed court proceedings
occur, and detainees are sometimes denied access to their legal
counsel and visits from family members. Many perceive the judiciary
to be subject to significant political intervention.
--The law provides for public access to government information, but
access was largely restricted in practice.
--Ethiopia's Corruption Perception Index score from Transparency
International remained stable between 2006 and 2007 at 2.4 ranking
it 138 out of 179 countries rated in 2007. While there is virtually
no bureaucratic corruption, many observers believe corruption in the
form of conflicts of interest to be rampant within government and
business. Preferential treatment is at times accorded by the GOE to
state-and party-owned enterprises and party patrons in the
commercial and economic sphere seeking: access to foreign exchange
and credit, government tenders and privatization.


ADDIS ABAB 00003036 004 OF 006


9. POVERTY REDUCTION- MAJOR STRENGTHS IDENTIFIED:
--GOE policy since the end of the war with Eritrea has been to
reduce the share of the budget devoted to the military and to use
the 'peace dividend' for poverty alleviation, food security, and
capacity building programs. The share of government expenditure on
social services is now growing at about 30% a year according to the
World Bank.
--Ethiopia sets its poverty goals in its Poverty Reduction Strategy
papers (PRSPs). The first PRSP covered the three-year period
2002-2005. The GOE is currently implementing its second PRSP,
known as the Plan for Accelerated and Sustained Development to End
Poverty (PASDEP). This is a five year (2005-2010) framework for
aligning MDG goals and donor support.
--Ethiopia implemented an International Monetary Fund- and World
Bank-supervised poverty reduction strategy. It completed a
three-year poverty reduction and growth facility (PRGF) with the IMF
in 2004 and is reportedly contemplating a new IMF program.
--The GOE has targeted food security, agriculture-led
industrialization, health, education, fiscal decentralization,
infrastructure development (roads, bridges, hydropower,
telecommunications), and capacity-building down to the district
level as development and poverty reduction priorities.
--The GOE has developed, in harmony with donors, a number of
instruments to reduce vulnerability to chronic famine, such as the
Productive Safety Net Program which provides the payment of food or
cash in return for public works.
--Ethiopia devotes a significant part of its budget to
infrastructure: the 2006/07 infrastructure budget was 42.6 percent,
slightly higher than in 2005/06, and its 2007/08 budget, unveiled in
July, is 41.6 percent marginally lower than in 2006/07.
--Some donor community funding was briefly withheld put on hold
after the 2005 election, in reaction to the GOE response to
post-election violence. This forced the GOE to cut back somewhat on
planned capital projects. Donors have now reengaged at even a
higher level, although the mechanism has been changed from one of
direct budgetary support (DBS) to providing funds to local
government entities through a new program, the Protection of Basic
Services (PBS) grant. Under PBS, aid funds are targeted, tightly
monitored, and directed at the regional and district levels.
--Ethiopia is participating in the enhanced HIPC initiative and has
received debt relief totaling nearly $4 billion. The external debt
burden has been reduced to less than $2 billion.

10. POVERTY REDUCTION- MAJOR ISSUES/PROBLEMS IDENTIFIED:
--Ethiopia ranks among the poorest and most vulnerable countries in
the world. Any major shock, natural or economic, can push millions
of people into destitution very quickly. Two major vulnerabilities
are weather and external assistance.
--Ethiopia has received above normal rainfall in the last three
years, and the Productive Safety Net Program is believed to have
removed up to five million people from the number of chronically
food-insecure Ethiopians that need food assistance. However, the
country is still far from reliably feeding itself. Safety nets
currently in place for the next severe drought cover only a fraction
of those at risk and opposition groups allege that the government
threatens to withhold Safety Net support and basic services from
opposition supporters. The Safety Net is a predictable, multi-year
program that is designed to smooth consumption and protect household
assets while creating community assets. It is not designed to
mitigate the effects of drought per se, although a contingency
financing mechanism to protect the program against a drought year
has been established.
While the allegation of politically motivated targeting for PSNP has
been noted in earlier years of the program, it has not been noted as
a wide scale problem, nor identified in last year's independent
assessment or targeting within the PSNP.
--Millennium Development Goals calls for cutting poverty in half by
2015. Achieving this target will require higher rates of economic
growth, substantial improvements in productivity, increased foreign
aid, greater private sector involvement and a much greater
expenditure on infrastructure.
--Domestic sources of financing are inadequate for current levels of
spending growth, and so the current budget calls for a sharp (34
percent) increase in planned external assistance. Foreign donors
have indicated they will provide substantial additional aid, but
Ethiopia is clearly increasingly vulnerable to donor good will, and
is likely to remain heavily dependent on high levels of donor
funding for some time to come.
--Progress in addressing governance concerns will be essential in
order to assure adequate levels of external assistance.
--Ethiopia is a candidate for U.S. Millennium Challenge Account
funding, but due to low scores on some of the indicators used to
determine eligibility, has not yet qualified for funding. It has
expressed interest in the MCC Threshold Program.

11. WORKERS RIGHTS/CHILD LABOR/HUMAN RIGHTS: MAJOR STRENGTHS
IDENTIFIED:
--The right to form labor associations and to engage in collective
bargaining is guaranteed by the Constitution; however, workers who
perform essential services are not permitted to strike.

ADDIS ABAB 00003036 005 OF 006


--Most ILO Core Labor Standards have been enacted into law; the
Ethiopian Parliament has ratified all eight core ILO labor
standards, including Convention 182 on the Worst Forms of Child
Labor.
--The Government re-certified the Confederation of Ethiopian Trade
Unions (CETU) in April 1997. Since its re-certification, CETU has
focused on fundamental workers' concerns, such as job security, pay
increases, and health and retirement benefits.
--Tripartitism emerged in May 1998 when the Government licensed the
Ethiopian Employers' Association (EEA). The EEA is dedicated to
maintaining labor peace and works in conjunction with the ILO, CETU
and the Ministry of Labor and Social Affairs. Its leadership
supports the adoption of all ILO Core Labor Standards.
Entrepreneurs generally believe that cooperating with labor is in
their self-interest.
--Child labor is not a pressing issue in the formal economy, though
it is common in rural areas and in the urban area informal economy.
Employers are statutorily prohibited from hiring children under the
age of 14. There are strict labor laws defining what sectors may
hire "young workers," ages 14 to 18, but these are not always
enforced.
--The ILO has determined that there is no problem of forced labor in
agriculture, nor is there a problem of child soldiers. The
Ethiopian army is all-volunteer and attracts sufficient volunteers
aged 18 and older.
--In May, 2005, Ethiopia enacted a new penal code criminalizing most
forms of human trafficking.
--The law provides for freedom of religion, and the government
generally respects this right in practice.
--The government took some measures to eradicate Female Genital
Mutilation (FGM), which is a pervasive problem in Ethiopia.

12. WORKERS RIGHTS/CHILD LABOR/HUMAN RIGHTS- MAJOR ISSUES/PROBLEMS
IDENTIFIED:
--Although the law provides for worker rights, unions have reported
that employers frequently fired workers who participated in union
activities. Anti-union discrimination was prevalent in the
workplace. Strikers have also found it difficult to conduct
strikes.
--The ruling party tightly controls the leadership of the
Confederation of Labor Unions and often influences union elections.
--Unemployment is high and poses major challenges to worker
organizing and poverty reduction.
--Child labor remained a serious problem, both in urban and rural
areas. There have been reports of forced or bonded child labor.
--According to the Department's annual Human Rights Report, the
Government's human rights record remained poor; although there were
improvements, serious problems remained.
--Security forces committed unlawful killings -- including
politically-motivated killings -- and beat, tortured and mistreated
detainees. The independent Commission of Inquiry, charged with
investigating the political violence of 2005, estimated that
security forces killed 193 civilian protestors. The previous
estimated death toll was 80 civilians. The government denied the
International Committee for the Red Cross access to certain
political prisoners.
--Political detainees were held incommunicado in unsanitary
detention facilities without light, and were denied access to
adequate medical care.
--Credible reports suggest that government pressured and intimidated
the independent Commission of Inquiry, charged with investigating
the political violence of 2005, into changing its findings. Several
members of the commission have resigned and/or fled the country for
fear of persecution.
--Government officials and members of the security forces harassed
individuals and their families to prevent them from joining or
remaining in opposition parties. Security forces detained family
members of persons sought for questions by the Government. There
were reports of forced displacement of rural families.
--Domestic violence is a pervasive problem, yet there is no specific
law regarding domestic violence or sexual harassment.
--Ethiopia is ranked as a Tier II trafficker, according to the USG's
2006 Trafficking in Persons report, that is, not fully complying
with the Trafficking Victims Protection Act but taking significant
steps to bring itself into compliance. The report states that
Ethiopia should improve its capacity to investigate and prosecute
trafficking crimes and public awareness of the problem through
educational outreach.
--Significant restrictions on political and civil liberties remain,
including on the right of assembly and the right of association.
The Government continues to arrest and detain persons arbitrarily,
particularly those suspected of sympathizing with or being members
of the Oromo Liberation Front (OLF). Several hundreds of suspects
remained in detention without charge, and lengthy pretrial detention
continued to be a problem. The Government continues to infringe on
citizens' privacy rights, and the law regarding search warrants is
often ignored, particularly in rural areas. Since May 2005, only one
permit has been granted for a public demonstration.
--Press freedom was restricted in the wake of November 2005
violence. Relations between the government and the private press

ADDIS ABAB 00003036 006 OF 006


were less strained in 2006, but journalists were still harassed,
detained, and given jail terms. While there are independent voices
in the print media, a degree of self-censorship is practiced. The
broadcast media, radio and television, are government controlled and
only infrequently air opposition voices. Politically and ethnically
motivated conflicts continue, periodically leading to deaths and
internal displacement of people.
--The opening of more democratic space - for the opposition, civil
society, and the media - remains the central issue. Freedom House's
Freedom in the World Index ranking for Ethiopia again this year was
"Partly Free".

13. INTERNATIONAL TERRORISM/U.S. NATIONAL SECURITY- MAJOR STRENGTHS
IDENTIFIED:
--Ethiopia has been a strong supporter of the global war on
terrorism. There is a high level of cooperation on military and
intelligence issues.

14. INTERNATIONAL TERRORISM/U.S. NATIONAL SECURITY- MAJOR
PROBLEMS/ISSUES IDENTIFIED:
--None

MALAC

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