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 
 
ADDIS ABAB 00003036  003 OF 006 
 
 
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