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