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