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OO RUEHWEB

DE RUEHDS #1464/01 1450558
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O 250558Z MAY 06
FM AMEMBASSY ADDIS ABABA
TO SECSTATE WASHDC IMMEDIATE 0805

UNCLAS ADDIS ABABA 001464 
 
SIPDIS 
 
SIPDIS 
 
H FOR MARK SMITH 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN PREL PGOV ET
SUBJECT: SCENESETTER FOR CODEL INHOFE VISIT TO ETHIOPIA 
 
 
¶1. Welcome to Addis Ababa! Your visit comes at a critical 
time for Ethiopia as the country works to strengthen 
democracy, promote economic reforms, and reduce poverty. 
Ethiopia is a strong partner in the global war on terrorism. 
The USG is currently leading diplomatic efforts to implement 
the long-stalled Algiers Accords which brought an end to the 
1998-2000 war between Ethiopia and Eritrea. 
 
-------------------------- 
DEMOCRACY AND HUMAN RIGHTS 
-------------------------- 
 
¶2. The U.S. has been at the forefront of trying the rebuild 
the democratic process in the wake the May 2005 elections and 
the ensuing civil disturbances of June and November.  Charge 
Huddleston and European ambassadors facilitated an ongoing 
political dialogue between the ruling party and leaders of 
two opposition parties that chose to enter Parliament.  Party 
representatives, supported by comparative studies funded by 
the U.S. and other donors, are discussing how to reform and 
strengthen democratic institutions including Parliament, the 
National Election Board and the media.  After a de facto ban 
of the party post-November, Coalition for Unity and Democracy 
(CUD) moderates have re-registered their organization. The 
U.S. strategy has been to press the opposition and government 
alike to engage in a democratic process.  Our commitment 
encourages the opposition parties to work within the 
democratic framework by taking their seats in Parliament, 
participating in a dialogue with the ruling EPRDF party, and 
forming a political party to represent the ex-CUD. The U.S. 
has also called upon the Government of Ethiopia (GOE) to 
protect human rights for all of its citizens and ensure a 
fair and transparent trial for those members of the CUD 
leadership who have been charged with capital crimes. 
 
-------------- 
BORDER DISPUTE 
-------------- 
 
¶3. Eritrea and Ethiopia concluded a two-year border conflict 
in 2000 with an Agreement on Cessation of Hostilities 
(Algiers Agreements). The U.S. was a witness to the Algiers 
Agreements.  In April 2002, the Eritrea-Ethiopia Boundary 
Commission (EEBC), established under the Algiers Agreements, 
issued a final and binding decision delimiting the border. 
According to the Algiers agreements, both parties were to 
facilitate the demarcation of the border by the Commission, 
but Ethiopia initially objected to the decision, then 
accepted it "in principle" but under the condition that a 
broad political dialogue take place to address root causes of 
the conflict.  Eritrea refused, stating that the border must 
be demarcated "as is."  After three years of little progress, 
Eritrea imposed a series of restrictions on the UN's border 
monitoring force (UNMEE), leading to an increase in military 
deployments and tension along the border.  In November 2005, 
the UN Security Council passed a resolution urging a 
resumption of demarcation efforts.  The USG has taken the 
diplomatic lead in support of the EEBC, which has convened 
twice this year in London, with representatives of both 
Ethiopia and Eritrea, to discuss steps necessary to resume 
demarcation of the border.  The parties, which continue to 
have no formal diplomatic relations with each other, have 
nevertheless agreed to meet again under the auspices of the 
EEBC in June.  The U.S. continues to work closely with the 
parties to resume demarcation of the border and promote an 
eventual normalization of relations. 
 
----------------- 
ECONOMIC OVERVIEW 
----------------- 
 
¶4. Since the early 1990's, Ethiopia has pursued a development 
strategy based on a mixed economy of both state and private 
enterprises.  It has eliminated discriminatory tax, credit, 
and foreign trade treatment of the private sector, and tried 
to simplify bureaucratic regulations and procedures. 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. In addition, 
increasingly frequent cycles of drought, high population 
growth, and inefficient agricultural markets all put 
significant pressure on Ethiopia's economy. Greater economic 
liberalization and reforms are critical to reducing poverty 
and increasing food security. Ethiopia's GDP for 2005 is 
estimated at USD8.5 billion, with an annual per capita GDP of 
USD100. The economy grew by 7.3 per cent in 2005, and the 
inflation rate was 6.8 per cent. The economy is predominantly 
agricultural, with agriculture contributing 42 per cent to 
the GDP and employing 80 per cent of Ethiopia's 74 million 
people. Almost all agricultural production is rainfed.  Major 
exports include coffee, oil seeds and pulses, and hides and 
skins, though non-traditional exports such as floriculture 
have increased significantly over the past few years and have 
strong growth potential. In 2005, Ethiopia's exports grew by 
over 30 percent, in part due to higher world coffee prices, 
though exports increased even faster, resulting in a growing 
trade deficit.  With U.S. Government 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. 
Ethiopia formally applied for WTO membership in January of 
2003, and further reforms, particularly in the services 
sector, are expected as a result of the accession process. 
The USG, through USAID, is providing technical assistance on 
WTO accession and strongly supports the process as a tool to 
promote reforms and enhance food security. 
 
--------------------------------- 
U.S.-ETHIOPIAN TRADE RELATIONSHIP 
--------------------------------- 
 
¶5. U.S.-Ethiopian bilateral trade totaled approximately 
USD575 million in 2005, with U.S. exports concentrated in 
aircraft and related parts. In August 2005, Boeing concluded 
a US$ 1.3 billion deal with Ethiopian Airlines for the sale 
of 10 Boeing 787 aircrafts. Ethiopia's exports to the United 
States were USD61.8 million in 2005, an increase of 50 per 
cent over 2004. There are no special barriers to U.S. trade 
and investment, though a limited number of sectors, including 
banking, continue to remain closed to foreign investment. 
Ethiopia's exports under AGOA, including GSP provisions, 
totaled approximately USD5 million in 2005. Though Ethiopia's 
exports under AGOA remain small compared with other eligible 
countries, strong potential exists in several key sectors, 
including garments/apparel, floriculture/horticulture, 
handicrafts, and leather products.  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 Government 
through the public-private sector AGOA Technical Committee 
established in late 2004. 
 
----------------- 
POVERTY REDUCTION 
----------------- 
 
¶6. Ethiopia remains one of the poorest countries in the 
world. Poverty alleviation and food security remain 
priorities for the government.  The 2005/06 government budget 
allocations reflect poverty reduction priorities. The 
government has decreased military spending from 13 per cent 
of GDP in 1999/2000, during the border war with Eritrea, to 
4.0 per cent of GDP in 2004/05, and is redirecting the 
savings to poverty reduction and capacity building efforts. 
In coordination with donors, the GOE is finalizing 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 
(HIPC) initiative and G8 Multilateral Debt Relief Initiative. 
The U.S. and Ethiopia signed a bilateral debt agreement in 
2004 that provided 100 percent cancellation of Ethiopia's 
debt to the United States. 
 
¶7. The United States provides both developmental and 
humanitarian assistance to Ethiopia, though we do not provide 
direct budget support (DBS).  Last year we provided USD700 
million for health, education and governance. USD 642 million 
was from USAID, which included approximately USD 465 million 
in food aid. Our objective is to help the Ethiopian 
government and people construct safety nets so that they will 
be less vulnerable to drought, disease and famine. As a 
result of post-election events in Ethiopia, donors providing 
direct budget support, including, among others, the World 
Bank, European Commission, the UK, and Canada, agreed to 
suspend DBS.  These funds will be reprogrammed through a new 
program, the Protection of Basic Services Grant, which 
includes more targeted, tightly monitored aid at the regional 
and district level. 
 
-------------------- 
AFRICAN UNION/DARFUR 
-------------------- 
 
¶8. The African Union (AU) and U.S.-AU relations have come a 
long way since the official emergence of the AU from the OAU 
in July 2002.  While the EU is currently the AU's largest 
donor and political partner, the AU looks to the U.S. for 
political support and engagement on key issues such as 
continental peace and security, terrorism, health challenges, 
trade and UN reform.  The U.S. will be the first non-African 
country to have a separate mission to the AU.  The AU looks 
to the USG for political support and dialogue.  Regularizing 
policy planning talks with the AU and playing a lead role in 
new Addis-based AU coordination structures would enable us to 
achieve our shared goals with Africa.  Building closer 
relationships with AU member state missions in Addis would 
also provide the USG with greater insight into AU 
decision-making processes and ensure U.S. views are 
considered. 
 
¶9. AU engagement in Darfur through the African Mission in 
Sudan (AMIS) has been seen as a test of the new 
organization's political will, and of its ability to work 
with Western partners.  Recent decisions of the AU Peace and 
Security Council endorsed the May 5 Darfur Peace Agreement 
(DPA) and also urged the AU Commission to work with partner 
countries to plan for the transition of the AU-led AMIS 
operation to a UN-led peacekeeping operation.  U.S. policy 
goals include pressing non-signatories (such as the JEM and 
Abdulwahid faction of the SLM/A) to endorse the DPA prior to 
May 31, while providing tangible support to those parties 
that did sign (such as the Minni Minawi faction of the 
SLM/A).  In addition to supporting DPA implementation, the 
United States is also working closely with other partners 
(such as NATO, the European Union, Canada, and the UK) to 
enhance the capabilities of the current AMIS peacekeeping 
operation in Sudan, as well as to facilitate the transition 
to a UN peacekeeping operation.  Resistance by the Government 
of Sudan (GOS) to allow a joint AU-UN assessment team to 
enter Sudan and begin planning has delayed the likely 
transition to a more robust UN operation.  U.S. officials 
will participate in a UN Security Council visit to Sudan and 
Addis Ababa next week (June 5) to push these objectives. 
HUDDLESTON