Cablegate: Eritrea: Agoa Response

VZCZCXYZ0009
RR RUEHWEB

DE RUEHAE #0751/01 2671543
ZNR UUUUU ZZH
R 241543Z SEP 07
FM AMEMBASSY ASMARA
TO SECSTATE WASHDC 9116

UNCLAS ASMARA 000751

SIPDIS

SIPDIS

SENSITIVE

DEPT FOR AF/EPS: JANET POTASH
DEPT ALSO FOR AF/E
PLEASE PASS TO USTR FOR CONNIE HAMILTON

E.O. 12958: N/A
TAGS: AGOA ECON ETRD ER
SUBJECT: ERITREA: AGOA RESPONSE

REF: STATE 132189

1. (SBU) Post point of contact: Pol/Econ Officer Holly Holzer, Tel:
291-1-12-00-04, Fax: 291-1-12-75-84, email: holzerhc@state.gov

2. (SBU) Post's response is keyed to outline provided by AF/EPS.

Begin text:

Country Background Summary: Eritrea's economic policy continues to
be built on a "no peace, no war" philosophy. The Government of the
State of Eritrea (GSE) justifies its iron grip on the economy, as
well as its restrictions on political freedoms, on the basis of
national security needs. The GSE contends that the unresolved
border dispute with Ethiopia continues to present a core threat to
Eritrea's sovereignty; the GSE purports that upon demarcation of the
border, the country will embrace democracy, a market economy and
free trade. The GSE's current approach has severely crippled
Eritrea's economy, leaving Eritrea with high trade deficits,
extremely limited foreign reserves, and a growing debt to be
serviced. With a population estimated at 4.4 million, Eritrea's
estimated Gross Domestic Product in 2005 was $954 million and the
estimated 2004 Gross National Income per capita was $180. Eritrea
remains one of the poorest and least developed countries in the
world, ranking 157th out of 177 countries in the 2006 UN Human
Development report. While the Constitution calls for functioning
branches of government -- legislative, executive and judicial -- and
for democratic freedoms, the Constitution has not been implemented.

I. Market-based Economy

A. Major Strengths Identified
* The investment code proclaimed in 1994 states that Eritrean law
will offer a supportive environment for private businesses, both
foreign and domestic. In 2007, the GSE proclaimed customs duty and
relief for foreign capital investments of USD 20 million or
greater.
* The GSE has expressed a commitment for private entities to
establish, acquire, own and dispose of most business enterprises and
asserts that property interests are protected and enforced.

B. Major Issues/Problems Identified
* In practice these laws are not followed and the GSE regularly
implements policies and practices contrary to free-market
principles.
* In January 2005, the GSE stopped the free import of goods into
Eritrea. Private businesses must request special permits from the
GSE in order to import goods into the country. The permits
regularly are denied.
* While no official barriers for export to the U.S. exist,
government practices, restrictions on imports and limits on foreign
exchange have virtually eliminated all trade with the U.S.
* The GSE has a history of expropriating profitable businesses and
property owned or operated by foreigners or its own citizens.
* In late 2004, the GSE shut down all mining operations in the
country at great financial loss to the foreign mining companies
investing in Eritrea. In 2005, they lifted the ban with verbal
promises to the mining companies it would not occur again. The GSE
continues to control the mining industry closely and refused to act
on pending exploration and extraction licenses resulting in one
international company which was waiting for an exploration license,
to abandon its application in summer 2007.
* The GSE controls the transfer of hard currency into and out of
Eritrea. The restrictions on foreign currency prevent companies from
exporting to the U.S., or outside Eritrea.
* The ruling and sole political party, in conjunction with the
government and the military, dominate all sectors of the economy,
control the market and can fix prices as desired. All major
industries and large businesses are owned by the ruling political
party, the government or the military.
* Nearly 350,000 Eritreans, both men and women, under the age of 40
remain conscripted in national service and an estimated 250,000 men
and women remain in military service, with compulsory military
training for all high school graduates. Conscriptees are given no
definite end date to their service; some citizens have been in
compulsory service for over 10 years. The GSE requires exit visas
for all citizens, but grants few to those of conscription age,
further impeding international business links.
* While the GSE did eliminate the dual exchange rate, the fixed
exchange rate of 15 nakfa per 1 USD is overvalued, and presently the
black market exchange rate is 50 percent lower at 22 nakfa per 1
USD.
* The primary focus of the Central Bank is not monetary policy but
the financing of government operations.
* The GSE does not publish or make public economic data and strictly
limits the release of information regarding public sector spending.

II. Political Reforms/Rule of Law/Anti-Corruption

Major Strengths Identified
* The GSE professes to support the rule of law and an independent
judiciary.
* There are stringent legal measures against corruption. Giving or
receive bribes is a criminal act.

Major Issues/Problems Identified
* The GSE established by proclamation a separate judicial system,
the special courts, to operate in conjunction with the existing
independent judiciary. Administered by the military, the special
courts are overseen by the Office of the President, operate in
parallel with the existing judiciary system and do not always follow
the rule of law.
* The Constitution, approved in 1997, has yet to be implemented, and
National Assembly elections have not been held.
* A multi-party democratic system does not exist.
* Individuals arbitrarily arrested by the police, including senior
government officials who express dissent with the GSE, are often
held for extended periods of time without due process, and often are
never formally charged with a crime.
* GSE operations are not transparent, and government officials often
make decisions not based on written policy or regulations.
* Individuals report having to pay small fees or bribes in order to
obtain government services, especially in relationship to
immigration.
* The drafting into national service of many civilians, including
court administrators, defendants, judges, lawyers, and others
involved in the legal system, continue to have a significant impact
on the judiciary.
* In 2003, the GSE closed the University under the guise of
reformulating the education priorities of Eritrea. Only limited
opportunities remain for post-graduate professional training and
none in the liberal arts.

III. Poverty Reduction

Major Strengths Identified
* The GSE actively promotes programs in health, education and
development with a commitment to reducing poverty.
* It has cooperated with UN agencies in the past and has received
support for the health and education projects from the World Bank
and the EC.
* Eritrea has a low HIV infection rate (3%) and has positive health
trends.
* The GSE is committed to self-reliance and the government expresses
a commitment to equitable development.
* The GSE has a stated policy of moving toward food security.

Major Issues/Problems Identified
* Limited resources and capacity constrain the GSE's ability.
* Institutional capacity to implement development programs is weak.
* In a country that consistently faces food shortages, the GSE
inexplicably in July 2005 requested that USAID, Eritrea's largest
bilateral development partner, cease operations.
* In spring 2006, the GSE abrogated nearly all food aid programs in
the country in order to implement a cash-for-work program. To date,
the U.S. Embassy has seen no evidence of a viable cash-for-work
program. International donors did not agree to this diversion from
agreements already in place that specified food aid was to be
distributed freely. The GSE refused to negotiate this decision with
donors and impounded over 80,000 metric tons of food aid. How, or
if, the appropriated food has been distributed or monetized remains
unknown.
* The GSE has, through policy and by directive, reduced the number
of international NGOs from over 40 in 2004 to only 11 in 2007, most
of which were engaged in poverty reduction programs. Remaining
INGOs are subject to strict guidelines, including limits on the
number of expatriate staff and restrictions on travel outside of the
capital, Asmara. INGOs also cite difficulties with importation of
capital equipment and program supplies (such as fuel); NGOs no
longer have duty exemptions and are taxed at commercial rates. A
number of NGOs have also reported significant delays in project
implementation due to obstacles in obtaining memoranda of
understandings with technical ministries.
* The conscription of a majority of the labor market into the
military and national service has had a deleterious effect on the
economy, particularly in the agricultural sector, by removing a
participating member of the household (often the head of household)
from being able to support the family either through labor or
through income.

IV. Worker's Rights/Child Labor/Human Rights

Major Strengths Identified
* In principle, there are no government restrictions on the
formation of unions.
* Forced or compulsory labor, including by children, is prohibited
under the Constitution.
* The labor law states that no one under the age of 14 may work and
that employees under the age of 18 may not work more than 7 hours
per day.
* Child labor is not a significant problem.
* Workers are permitted to remove themselves from dangerous
worksites without retaliation.
* Eritrea has ratified seven of the eight fundamental ILO
Conventions.
* The GSE does make efforts to address the victimization of sex
workers, including of children, and to assist orphaned children.
* While female genital mutilation remains widespread, the GSE does
have an active program aimed at eliminating this practice. In 2007,
the GSE proclaimed FGM illegal and established criminal consequences
for anyone committing or being a party to FGM.

Major Issues/Problems Identified
* Eritrea's human rights record worsened during the reporting
period.
* The GSE continues to detain two Eritrean U.S. Embassy employees
who were arrested without charge in October 2001. The families of
the employees do not have access to them, and the employees'
physical location is unknown.
* In September 2001, the GSE arrested without charge 11 prominent
political figures who called for political reform. The GSE claims
they were arrested for national security reasons and not for their
political views. They continue to be held incommunicado and the GSE
refuses to provide information, will not allow family to visit them,
and has not provided them with due process.
* In September 2001, the government closed the entire independent
press and arrested without charge journalists, editors, and
publishers. Six years later, the press remains closed.
* Freedom of assembly, association and speech is restricted.
* Basic freedoms are severely restricted and individuals are often
arrested under the guise of "national security" and detained at
length without charges being filed. Arbitrary arrest and detention
is frequent.
* Citizens do not have the right to change their government.
Individuals who criticize the government are arrested and detained.
* Eritrea has not ratified ILO 182 on the Worst Forms of Child
Labor.
* Military service is compulsory for all men ages 18- 40 and all
women ages 18-27 who do not have children. Those in national
service are assigned to work in government jobs or for businesses
owned by the government or sole political party at significantly
reduced wages. The government has even assigned these workers to
foreign (non-U.S.) companies operating in Eritrea. The GSE often
refuses to release individuals from national service who seek
employment in the private sector.
* The government arrested and incarcerated family members of those
who evaded national or military service.
* GSE prison officials committed unlawful killings during the
reporting period.
* The penal code prohibits torture; however, physical and mental
torture is used by military and prison officials.
* In 2004, 2005, and 2006 the U.S. designated Eritrea as a Country
of Particular Concern for violations of religious freedoms.
* Members of non-registered religious groups are often arrested and
held without charge.
* Human rights organizations are not permitted in the country.
* The GSE restricts the travel of all foreigners, including
diplomats, UN employees and tourists in the country.

V. International Terrorism/U.S. National Security

Major Strengths Identified
* NONE

Major Issues/Problems Identified
* While Eritrea has claimed in the past to be a supporter of U.S.
efforts to secure U.S. national security and to be a partner in the
War on Terrorism, throughout 2005-2007, President Isaias repeatedly
dismissed and ridiculed U.S. concerns about terrorism in his public
speeches and interviews.
* In 2006-2007, multiple reports indicated that Eritrea has been
providing material support and training to violent groups in Somalia
with possible ties to al-Qaeda. These reports included a
fact-finding briefing drafted by an independent UN monitoring group
in spring 2007. Based on these reports, the State Department's
Assistant Secretary for African Affairs announced in August 2007
that the U.S. Government was reviewing whether Eritrea should be
added to the State Sponsors of Terrorism list. In September 2007,
the GSE allowed Somali Sheikh Hassan Dahir Aweys, who is designated
under Executive Order 13224 as a terrorist, to enter and stay in
Eritrea.
* Bilateral relations between the U.S. and Eritrea have further
deteriorated over the past year. No active exchange of information
exists between Eritrea and the U.S. nor does Eritrea participate in
any U.S.-sponsored training.
* The GSE, in the past, has stated that relations with the United
States cannot normalize until the border with Ethiopia is
demarcated, with the implication that they will support U.S.
counter-terrorism (CT) programs in the Horn if, and when, this
occurs.
* While several years ago, the GSE offered logistical support and
use of airfield and port facilities to U.S. forces in the Global War
on Terrorism, this support has not materialized. The GSE continues
to restrict overflight clearances for military flights involved with
CT programs. For over a year, the GSE has also denied both flight
landing requests and visas for U.S. personnel involved in regional
counter-terrorism programs to visit Eritrea.
End Text.

MCINTYRE

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