VZCZCXRO7601
RR RUEHROV
DE RUEHDS #2853/01 3381132
ZNR UUUUU ZZH
R 041132Z DEC 09
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 7028
INFO RUCNIAD/IGAD COLLECTIVE
RUEPADJ/CJTF HOA
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RUEWMFD/HQ USAFRICOM STUTTGART GE
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 06 ADDIS ABABA 002853 
 
SIPDIS 
 
DEPARTMENT FOR AF/E JWIEGERT; AF/EPS - ABREITER AND GMALLORY; 
EEB/IFD/OMA - JWINKLER AND EEB/CBA - DWINSTEAD; EEB/TPP/BTA 
DEPARTMENT PASS TO USTR FOR PATRICK COLEMAN, BARBARA GRYNIEWWICZ, 
GLORIA BLUE, JANE DOHERTY, AND JEFF WEISS 
DEPT OF COMMERCE FOR ITA MARIA RIVERO 
DEPT OF TREASURY FOR REBECCA KLEIN 
USAID FOR AFR/EA - HELLYER, DALTON, AFR/SD - CURTIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EFIN EINV BEXP AF ET
SUBJECT: ETHIOPIA: 2010 NATIONAL TRADE ESTIMATE REPORT ON FOREIGN 
TRADE BARRIERS 
 
REF: STATE 106353 
 
ADDIS ABAB 00002853  001.2 OF 006 
 
 
¶1. (U) This cable is a response to reftel request for the 2010 
National Trade Estimate Report on Foreign Trade Barriers. 
 
TRADE SUMMARY 
------------- 
 
¶2. (U) The U.S. goods trade surplus with Ethiopia was $147.2 million 
in 2008, an increase of 89 percent over the surplus of $77.7 million 
in 2007.  U.S. goods exports in 2008 were $299.4 million, up 80 
percent from the previous year.  Corresponding U.S. imports from 
Ethiopia were $152.2 million, up 73 percent.  U.S. goods exports in 
the first nine months of 2009 reached $159 million indicating a 
short fall of $39 million in contrast to $198 million in the same 
period of 2008.  Corresponding U.S. imports from Ethiopia during the 
same period were $88.4 million in contrast to $128 million in 2008. 
Ethiopia was the 108th largest export market for U.S. goods during 
¶2008. 
 
¶3. (U) The stock of U.S. foreign direct investment in Ethiopia 
reached $254.7 million as of September 2009, which includes both 
projects under implementation and operation. 
 
IMPORT POLICIES 
--------------- 
 
¶4. (U) Ethiopia is not a Member of the World Trade Organization 
(WTO), but has begun the process of acceding to the WTO.  It 
submitted the Memorandum of Foreign Trade Regime to the WTO in 
December 2006, sent replies to the first round of WTO member 
questions in January 2008, and held its first Working Party Meeting 
in May 2008.   Ethiopia submitted its replies to a second round of 
questions generated after its first Working Party in March 2009. 
In June 2009, Ethiopia submitted a Legislative Action Plan to meet 
WTO requirements.  Additionally, Ethiopia has finalized a number of 
other WTO Accession documents with U.S. Government support and these 
documents will be forwarded to the WTO Secretariat upon final 
approval by the Ethiopian Ministry of Trade and Industry.  The 
Second Working Party Meeting is expected to be held in 2010, pending 
Ethiopia's confirmation with the WTO.  Ethiopia has made modest 
progress in drafting new legislation and implementing capacity 
building measures relevant to accession with the help of technical 
assistance from a number of donors, including the U.S. Government. 
Ethiopia is a member of the Common Market for Eastern and Southern 
Africa (COMESA).  Economic relations between the U.S. and Ethiopia 
are governed by the 1953 Treaty of Amity and Economic Relations. 
 
¶A. Tariffs 
 
¶5. (U) Revenue generation, not protection of local industry, appears 
to be the primary purpose of Ethiopia's tariffs.  High tariffs are 
applied to protect certain local industries, however, such as the 
textile and leather industries.  Goods imported from COMESA members 
are granted a 10 percent tariff preference.  Ad valorem duties range 
from 0 percent to 35 percent, with a simple average of 16.8 percent. 
 In February 2007, the government levied a ten percent surtax on 
selected imported goods, with the proceeds designated for 
distribution of subsidized wheat in urban areas.  In July 2008, the 
government of Ethiopia introduced an export tariff on raw and 
semi-processed hides and skins in an effort to shift domestic 
production to focus more on finished leather, hides and skins, which 
reap higher world prices. 
 
¶6. (U) The estimated impact of this trade barrier is less than $10 
million based on its minimal impact on U.S. exports. 
 
¶B. Foreign Exchange Controls 
 
¶7. (U) Importers are facing increasing difficulty in obtaining 
foreign exchange, particularly those importing goods or inputs 
destined for domestic sales.  Ethiopia's central bank administers a 
strict foreign currency control regime and has a monopoly on all 
foreign currency transactions.  The local currency (Birr) is not 
freely convertible.  While larger firms, state-owned enterprises, 
 
ADDIS ABAB 00002853  002.2 OF 006 
 
 
and enterprises owned by the ruling party have not typically faced 
major problems obtaining foreign exchange, less well connected 
importers, particularly smaller, new-to-market firms, increasingly 
face burdensome delays in arranging trade related payments.  An 
importer must apply for an import permit and obtain a letter of 
credit for the total value of the imports before an order can be 
placed.  Even then, import permits are not always granted.  Ethiopia 
currently maintains four requirements and potential restrictions for 
payments and transfers of international transactions, which include: 
1) tax certification requirement for repatriation of dividend and 
other investment income; 2) regulations covering the repayment of 
legal external loans and foreign partner credits; 3) rules for 
issuance of import permits by commercial banks; and 4) a requirement 
to provide a clearance certificate from the National Bank of 
Ethiopia (central bank) to obtain import permits. 
 
¶8. (U) The stock of Ethiopia's foreign exchange reserves fell to one 
month of import coverage in December 2008, but recovered slightly to 
about 1.8 months by December 2009.  International economists expect 
the foreign exchange crisis to continue for the foreseeable future 
as Ethiopia continues to rely on donor flows to combat the problem. 
An acute shortage in Ethiopia's foreign exchange market has stalled 
overall business in both the private and public sectors.  Whereas 
firms seeking bank letters of credit for imports requiring hard 
currency previously could acquire those upon demand and with an 
initial 30 percent deposit, such requests now routinely face waits 
in excess of three months and require 100 percent of the payments up 
front.  The government's recent tightening of the banking 
regulations to manage its limited foreign exchange reserves has 
consequently dampened the supply of desired consumer and industrial 
imports.  The limited supply of foreign exchange in Ethiopia's banks 
has continued to take a toll on U.S. commercial interests as 
companies have had increasingly difficulty in importing essential 
consumer inputs and industrial capital goods from abroad.  As a 
result, some prominent U.S. and other foreign business interests in 
Ethiopia may be forced to suspend business operations in Ethiopia. 
 
 
¶9. (U) The estimated impact of this trade barrier is $25 to $100 
million based on the amount of U.S. machinery and spare parts that 
are exported to Ethiopia. 
 
¶C. Sanitary and Phytosanitary (SPS) Regulations 
 
¶10. (U) On September 9, 2009, the Ethiopian Government enacted 
Proclamation No. 655/2009, establishing a regulatory framework for 
biosafety in Ethiopia.  The stated objective of the proclamation is 
to protect biodiversity, as well as human and animal health, from 
the "adverse effects of modified organisms."  This law places a 
significant regulatory burden on those who seek to import food 
commodities containing "modified organisms" (MO) and is both more 
expansive and comprehensive than internationally accepted norms on 
biosafety outlined in the Cartagena Protocol on Biosafety.  For 
example, it makes no distinction between viable (i.e., able to 
reproduce in the environment) and non-viable organisms, as outlined 
in the Cartagena Protocol.  As a result, the proclamation may result 
in a significant barrier to trade in both processed and raw food 
products, as well as a variety of agricultural products.  Corn, soy, 
and cotton derivative products are among the potentially affected 
products. 
 
¶11. (U) The biosafety law grants the Ethiopian Environmental 
Protection Authority (EPA) the power to regulate the making or use 
of any MOs in "teaching, research, production, import, export, 
transit, release, contained production, transport, placing on the 
market, or use as pharmaceutical, as food, as feed, or for 
processing."  According to the law and directives, an Advanced 
Informed Agreement (AIA) must be obtained before a viable or 
non-viable MO may enter Ethiopia.  The AIA application process 
includes submission of product characterization information, 
environmental and human health risk assessments, social and economic 
impact assessments, and risk management plans.  By contrast, the 
Cartagena Protocol only requires an AIA for living modified 
organisms intended for direct release into the environment, not for 
those intended for food, feed, or processing. 
 
ADDIS ABAB 00002853  003.2 OF 006 
 
 
 
¶12. (U) The estimated impact of this trade barrier ranges from $100 
to $500 million based on the historical amount of U.S. food exports 
to Ethiopia. 
 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
--------------------------------------------- -- 
 
¶13. (U) The Quality and Standards Authority of Ethiopia regulates 
all exports and imports that are subject to Ethiopian standards. 
Certification is required for foodstuffs, construction materials, 
chemicals, textiles, and pharmaceuticals.  Outside of the new 
biosafety legislation affecting food and agricultural products, the 
standards appear to be consistent with international norms. 
Pharmaceuticals that have been extensively tested and licensed in 
other countries are allowed to enter the Ethiopian market without 
further testing.  Industry sources have reported instances in which 
burdensome regulatory or licensing requirements have prevented the 
import and/or local sale of products from the United States and 
other countries, particularly personal hygiene and health care 
products. 
 
¶14. (U) Ethiopia established a National Codex Committee (NCC) in 
2003, which advises the Ethiopian Government on food standard 
issues.  The NCC is a member of the Food and Agricultural 
Organization of the United Nations (FAO)/World Health Organization 
(WHO) Coordinating Committee for Africa (CCAFRICA), which 
participates in Codex (the WTO-recognized body for setting 
international food safety standards). 
 
¶15. (U) The new biosafety law imposes rigorous examination and 
burdensome labeling requirements for MO-related food and 
agricultural products.  The EPA must be notified before any MO is 
transported into Ethiopia and MOs must be declared at points of 
entry.  MO-related products must be labeled, in English and the 
local language (Amharic), with the words "contains modified 
organism."  Customs officers have the authority to examine, sample, 
and detain loads if they are thought to contain unauthorized MOs. 
Transporters must obtain a special license to bring viable MO 
products into Ethiopia. 
The estimated impact of this trade barrier is included in the SPS 
regulations section. 
 
GOVERNMENT PROCUREMENT 
---------------------- 
 
¶16. (U) A high proportion of Ethiopian import transactions are 
conducted through government tenders, reflecting the heavy 
involvement of the government in the overall economy.  The tender 
announcements are usually made public to all interested potential 
bidders, regardless of the nationality of the supplier or the origin 
of the products or services.  Bureaucratic procedures and delays in 
the decision-making process sometimes impede foreign participation 
in tenders.  U.S. firms have complained about the abrupt 
cancellation of some tenders, a perception of favoritism toward 
Chinese vendors, and a general lack of transparency in the 
procurement system.  Business associations have complained that 
state-owned and ruling party-owned enterprises have enjoyed de facto 
advantages over private firms in the government procurement process. 
 Several U.S. firms have complained of pressure to offer vendor 
financing or other low-cost financing in conjunction with bids. 
Several significantly large contracts have been signed in recent 
years between government enterprises and Asian companies without a 
tender process.  Ethiopia is not a Member of the WTO and, therefore, 
is not a signatory to the WTO Agreement on Government Procurement. 
 
 
¶17. (U) The estimated impact of this trade barrier is $100 to $500 
million based on the number of U.S. company registered complaints of 
these practices. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
--------------------------------------------- 
 
¶18. (U) Ethiopia is a party to the World Intellectual Property 
 
ADDIS ABAB 00002853  004.2 OF 006 
 
 
Organization Convention.  The Ethiopian Intellectual Property Office 
(EIPO) is responsible for the administration of patents, trademarks, 
copyrights, and other intellectual property policy and legal issues. 
 In the past few years, Ethiopia has enacted a series of new laws 
pertaining to copyright and related rights, plant varieties, and 
trademarks.  In July 2008, EIPO confiscated and destroyed close to 
half a million pirated copies of locally produced songs and films in 
Addis Ababa. 
 
¶19. (U)Ethiopia has yet to sign onto 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 the Protection of Literary and Artistic Works; and the Patent 
Cooperation Treaty.  As EIPO has been tasked only to protect 
Ethiopian copyrighted materials and pirated software, EIPO has taken 
no action to confiscate or impede the rampant sale of pirated 
foreign works in-country, arguing that it has no obligation to 
protect such works which it considers to be outside of its purview. 
 
¶20. (U) Several Ethiopian firms, particularly in the tourism and 
service industries, operate under the names, or use the symbols, of 
major international brands.  The lack of government registration 
requirements and enforcement capacity leave the government in a 
position of only responding to formal IPR challenges brought to 
Ethiopia's Competition Commission. 
 
¶21. (U) The estimated impact of this trade barrier is $100 to $500 
million based on the amount of pirated works sold in Ethiopia and 
the number of businesses operating illegally under U.S. brand 
names. 
 
SERVICES BARRIERS 
----------------- 
 
¶A. Telecommunications 
 
¶22. (U) The state-run Ethiopian Telecommunications Corporation (ETC) 
maintains a monopoly on telecommunications and Internet service and 
is closed to private investment.  The sector remains underdeveloped 
and Ethiopia, with an estimated population of over 80 million, has 
the lowest telecommunications and internet penetration rates in 
Africa with just 3.1 million mobile phones, 900,000 fixed phone 
lines and 40,000 internet subscriptions as of March 2009. 
 
¶23. (U) Telecommunications service in Ethiopia is patchy and 
unreliable at best.  While most of Addis Ababa receives mobile phone 
coverage, attempted calls often fail for broken signals, false 
errors of recipients being out of the service area, or a lack of 
network capacity to carry the call.  Both coverage and service in 
most other major towns is unpredictable.  To date, the Ethiopian 
government has not made any special accommodations for the business 
community to acquire improved telecommunications services to compete 
in the global market.  The government has taken a populist approach 
in improving the telecommunications sectors by focusing the bulk of 
its efforts toward broad access for rural areas before it plans more 
robust and high tech upgrades to help businesses.  Chinese companies 
have received the vast majority of orders from ETC for upgrading its 
infrastructure. 
 
¶24. (U) An August 2005 directive allows private companies to provide 
Internet service through the government's infrastructure, but 
implementing regulations have yet to be promulgated and ETC 
maintains a de facto monopoly on Internet services.  There are no 
regulations on international data flows or data processing use.  In 
late 2009, Ethiopia released a tender soliciting an international 
firm to overhaul ETC's management operations. 
 
¶25. (U) The estimated impact of this trade barrier is over $500 
million based on the U.S. private sector's capacity to develop the 
local telecom sector and telecom restrictions on current U.S. 
businesses operating in Ethiopia. 
 
¶B. Franchising 
 
¶26. (U) Difficulties in product quality control, banking 
 
ADDIS ABAB 00002853  005.2 OF 006 
 
 
regulations, and continuing foreign exchange convertibility issues 
make franchising difficult.  Currently, there are no U.S. franchise 
operations in the country, though two U.S.-flagged hotels operate 
under United States-linked management contracts. 
 
¶27. (U) The estimated impact of this trade barrier is $100 to $500 
million based on the numerous U.S. franchise companies that would 
consider enter the populous Ethiopian market. 
 
INVESTMENT BARRIERS 
------------------- 
 
¶28. (U) Official and unofficial barriers to foreign investment 
persist.  Investment in telecommunications services and defense 
industries is permitted only in partnership with the Ethiopian 
government.  The banking, insurance, and micro-credit industries are 
restricted to domestic investors.  Other areas of investment 
reserved exclusively for Ethiopian nationals include broadcasting, 
air transport services using aircraft with a seating capacity of up 
to 20 passengers, and forwarding/shipping agency services.  Foreign 
investors are also barred from investing in a wide range of small 
retail and wholesale enterprises (e.g., printing, restaurants, and 
beauty shops). 
 
¶29. (U) According to Ethiopia's 2007 Plan for Accelerated and 
Sustained Development to End Poverty (PASDEP), it allows for the 
participation of the private sector in generation of power for sale 
to the national grid and also allows the private sector to 
participate in off-grid transmission, distribution, and sale of 
electricity.  In addition, the Minister of Mines and Energy has 
recently stated that Power Purchasing Agreements (PPAs) and other 
financing modalities are under consideration.  In fact, PPAs and 
Independent Power Producers (IPPs) are referenced in a draft feed-in 
tariff bill that appears to open the door for private investors to 
sell electricity generated by renewable energy sources to the 
national grid.  Ethiopian government officials have asserted in 
recent meetings with U.S. Government officials, however, that 
Ethiopia is interested only in foreign concessional financing for 
large-scale energy projects. 
 
¶30. (U) The government is privatizing a large number of state-owned 
enterprises.  Most, but not all, of the tenders issued by the 
Privatization and Public Enterprises Supervising Agency are open to 
foreign participation.  Some investors bidding on these properties 
have complained about a lack of transparency in the process.  Others 
who have leased land or invested in formerly state-owned businesses 
subject to privatization have experienced political impediments to 
assuming full control of acquired firms (e.g., transferring title, 
delay in evaluating tenders, and tax arrears). 
 
¶31. (U) All land in Ethiopia belongs to the state; there is no 
private land ownership.  Land may be leased from local and regional 
authorities for up to 99 years.  In practice, land has been made 
readily available by the authorities to foreign investors in 
manufacturing and agriculture business, but less so for real estate 
developers.  An ongoing border dispute with Sudan has resulted in 
investors, including foreign investors, who had been granted land 
usage rights in the area to have their land and all assets forcibly 
taken by Sudanese authorities without recourse or response from the 
Ethiopian government. 
 
¶32. (U) Some of these investment barriers are addressed in other 
sections of this report; however, the estimated impact of this trade 
barrier is over $500 million primarily due to the potential U.S. 
investment in the financial sector as well as increased U.S. 
investment in large scale manufacturing and agricultural 
operations. 
 
OTHER BARRIERS 
-------------- 
 
¶A. Parastatal and Party-affiliated Companies 
 
¶33. (U) Ethiopian and foreign investors alike complain about 
patronage networks and de facto preferences shown to businesses 
 
ADDIS ABAB 00002853  006.2 OF 006 
 
 
owned by the government or associates of the ruling party in the 
form of preferential access to bank credit, foreign exchange, land, 
procurement contracts, import duties, etc. 
 
¶34. (U) Partially overlapping with the Government Procurement 
section of this report, the estimated impact of this trade barrier 
is over $500 million based on the difficulty private sector 
companies face if they do not partner with a state-owned enterprise 
or ruling party-owned entity. 
 
¶B. Judiciary 
 
¶35. (U) Ethiopia's judicial system remains inadequately staffed and 
inexperienced, particularly with respect to commercial disputes. 
While property and contractual rights are recognized, and there are 
commercial and bankruptcy laws, judges often lack understanding of 
commercial matters and scheduling of cases often suffer from 
extended delays.  Contractual enforcement remains weak.  There is no 
guarantee that the award of an international arbitral tribunal will 
be fully accepted and implemented by Ethiopian authorities. 
Ethiopia has signed, but never ratified, the 1965 Convention on the 
Settlement of Investment Disputes between States and Nationals of 
Other States.  The Ministry of Justice and the Federal Ethics and 
Anti-Corruption Commission (FEACC) are the government entities with 
primary responsibility to combat corruption.  FEACC has arrested 
many officials, including managers of the Privatization Agency, 
Ethiopian Revenue and Customs Authority, National Bank of Ethiopia 
and the state-owned Commercial Bank of Ethiopia, and charged them 
with corruption.  In 2009, FEACC actively arrested officials of 
private financial institutions in allegedly involved in unlawful 
business practices and individual businesspersons accused of tax 
evasion. 
 
¶36. (U) The estimated impact of this trade barrier is $10 to $25 
million based on registered complaints made by U.S. firms or 
individuals.