WORLD TRADE WT/L/229
10October 1997
ORGANIZATION(97-4301)
Original: English General Council
22October 1997
ETHIOPIA -REQUEST FOR OBSERVER STATUS
Communication from Ethiopia
Thefollowing communication, dated 25September 1997, hasbeenreceived fromtheMinister
ofTrade andIndustry ofEthiopia.
_______________
Onbehalf oftheGovernment oftheFederal Democratic Republic ofEthiopia, Ihavethehonour
tosubmit theapplication oftheGovernment oftheFederal Democratic Republic ofEthiopia forobserver
status intheGeneral Council oftheWorld Trade Organization (WTO) anditssubsidiary bodies.
Inthisconnection, Iwould liketostatethatitistheintention oftheGovernment oftheFederal
Democratic Republic ofEthiopia toapply foraccession totheWTO Agreements inthenearfuture.
Inthemeantime theobserver status would helptheGovernment ofEthiopia familiarize itselfwiththe
WTO anditsrules andprocedures.
Inaccordance withtherules ofprocedure oftheGeneral Council, Iamenclosing herewith
amemorandum ontheForeign Trade Regime ofEthiopia.
Ishould liketorequest youtoplace thisapplication andtheaccompanying document before
theGeneral Council atitsnextmeeting starting on22October 1997.WT/L/229
Page2
ETHIOPIA 'SECONOMIC POLICY AND FOREIGN TRADE REGIME: ANOVERVIEW
1. Introduction
(a) Thecountry
Ethiopia withalandmassof1.1million square kilometres isthefourth largest country insub-
Saharan Africa. Itsrecent population estimate stands atabout 56.6million (1995), ofwhich 84.7per
centliveinruralareas. Thepopulation isgrowing atanaverage rateof3.2percentperannum and
isexpected toreach 66.7million bythebeginning ofthenextcentury.
Thecountry isrichly endowed withhuge manpower, arable landandnatural resources.
However, much ofitspotential isnotyetexploited. Sixty percentofitslandmassisknown tohave
apotential foragricultural development, andonly15percentissaidtohavebeendeveloped. Although
itscontribution tothenational economy isverylimited, thecountry 'slivestock wealth isthelargest
inAfrica. Themineral resources potential isalsorich,though much ofitisyettobeexploited. A
fewofthemineral occurrences aregold, platinum, marble, tantalum, copper, potash, zinc, ironand
natural gas.
(b) Theeconomy
TheEthiopian economy isdominated bypeasant agriculture, withtheagricultural sector
contributing 50percenttothetotalGDP, accounting for85percentofexport andtotalemployment.
Thecountry 'sexport ishighly dependent onasingle crop, coffee, generating nearly 60percentof
theforeign exchange earnings.
Ethiopia 'sexport ismainly dependent onprimary products, viz.coffee, oilseeds andpulses,
leather andleather products, liveanimals, meatandmeatproducts, fruits andvegetables, andgold.
Ontheimport front, Ethiopia 'smajor imports constitute rawmaterial, semi-finished goods (mainly
chemicals, fertilizers, textile materials) fuel,capital goods aswellasdurable andnon-durable consumer
goods. Theprincipal trading partners interms oftheirshare aretheEU,Japan, theUSandSaudi
Arabia.
Thelevel ofdevelopment ofthemanufacturing sector inEthiopia isatitsinfancy, andthe
country 'sindustrial baseisverylow. Theindustrial sector isheavily dependent onimports ofsemi-
processed goods, rawmaterial, spare partsandfuel.Inaddition toimported inputs, thefactories depend
onbackward andsubsistence agriculture fortheirrawmaterial demand. Themanufacturing industry,
including small scale andhandicrafts, contributes about 12percenttoGDP and15percentofthe
totalexport. Ontheother hand, theservices sector makes upabout 38percentofGDP.
TheEthiopian economy between 1974and1991revealed poorperformance inagriculture and
other sectors, themajor causes ofwhich are:protracted civilwar,recurrent drought, natural resources
degradation, andabove all,inappropriate policies ofthepastcommand economy. Ontheother hand,
thepost-May 1991 period haswitnessed theintroduction oftheNewEconomic Policy (NEP). The
firststeps theGovernment tooktoenhance macro-economic stability were tocreate aconducive
atmosphere fortherevitalization oftheeconomy, consolidating peace andstability, nurturing democracy
andthedevolution ofpower. TheNEP contains measures suchaschanging theroleofthestate,
enhancing theparticipation oftheprivate sector andtracking backtheeconomy onthepathofrecovery
andsustainable development.WT/L/229
Page3
2. Overall development strategy
Thelong-term objective ofdevelopment inEthiopia isstructured transformation oftheeconomy
inwhich therelative weight ofagriculture, industry andservices changes significantly towards the
latter two. Especially, theobjective istoraiseappreciably theshare oftheindustrial sector inthe
economy bothinoutput andemployment generation. Thisstructural transformation isenvisaged to
occur withahighgrowth ofindustry andservices.
Inessence, thedevelopment strategy revolves around productivity improvement ofsmall holder
agriculture andindustrialization based onutilization ofdomestic rawmaterials withlabour-intensive
technology. Thestrategy isakintowhatisknown asAgricultural Development-Led Industrialization
(ADLI), framed intoEthiopian agricultural andindustrial development. Inaddition, thestrategy by
addressing itsmain objectives isexpected toboost exports.
Themajor objectives ofADLI intheEthiopian development context areto:
(a) promote economic efficiency andgrowth;
(b) bring about astructural shiftintheeconomy infavour ofindustry;
(c) promote inter-and intra-sectoral linkages;
(d) develop domestic technology capability fortheproduction ofintermediate inputs, spare
parts andcapital goods;
(e) create asound baseforthetransfer, adaptation anddevelopment oftechnology;
(f) develop andachieve international competitiveness inareas ofclear comparative
advantage inindustrial exports;
(g) promote balanced regional development; and
(h) promote theuseoflabour-intensive technology andoflocalresources
3. Economic policy measures
Theeconomic reform programme wasinitiated withthelaunching oftheneweconomic policy
inNovember 1991. Theagenda ofthereform consisted oftransition from acommand toamarket
economy, economic stabilization andstructural adjustment. During thereform period policy measures
undertaken weremainly concerned withthecorrection ofprice distortions, lifting restrictions onthe
private sector, instituting markets forfactors ofproduction, macro-economic andtradeliberalization.
Inaddition tomacro-economic adjustment policies, itwasnecessary toalterdrastically theroleofthe
statesoastoenable theprivate sector toplayapivotal roleineconomic development. Some ofthe
major economic policy measures undertaken arehighlighted below:
(a) Theovervalued exchange rateofthelocalcurrency (Birr) isdevalued followed bythe
introduction ofaweekly foreign exchange auction system.
(b) Thesystem ofprice control hasbeendismantled except forpetroleum products.
(c) Most ofthepublic enterprises aretobeprivatized andtillthentheyhavebeenmade
tooperate onacommercial basis withfullfinancial andmanagement autonomy and
withnorightforsubsidy.
(d) Theprivate sector hasbeenfreedfromthefetters ofthepastcommand economy. There
isnownoceiling onthesizeofdomestic private investment andnolimitation onthe
number ofbusiness activities thatmaybeundertaken. Implicit entry barriers intothe
business sector havebeenremoved, andprocedures fortraderegistration andlicensing
havebeenimproved byanewlegislation.WT/L/229
Page4
(e) One-step investment offices, bothatfederal andregional levels, havebeenestablished.
TheInvestment Code hasbeenrevised toallow forgreater domestic aswellasforeign
investor participation. Inorder toencourage private investment andtopromote the
inflowofforeigncapitalandtechnologyintoEthiopia,incentivesaregrantedtoinvestors
(bothdomesticandforeign)engagedinnewenterprisesandexpansionsinareasqualified
forinvestment incentives.
(f) Thetariffregimehasbeenoverhauledwithmassivecutsoftariffbrackets,andtightening
thescope oftaxexemption. Themaximum ratewasslashed from230percentto50
percentinorder tomitigate theeffects ofthedevaluation onimport bills.
(g) Measures havealsobeentaken toliberalize thefinancial sector. These include:
(i) therestructuring andcommercialization ofthestate-owned banks andinsurance
corporation; and
(ii) aproclamation fortheLicensing andSupervision ofBanking andInsurance
Business.
Consequently, anumber ofprivate insurance companies andbanks areestablished thus
creating acompetitive environment ofthebusiness.
(h) Inorder tointroduce afreelabour market anewLabour Code hasbeenpromulgated.
(i) Thecountry isnowaFederal Republic, andregional states haveautonomy inmost
issues thatareofregional concern.
(j) State-owned trading enterprises areprivatized orareintheprocess ofprivatization.
(k) Adutydraw-back scheme isintroduced inorder torefund duties paidonimported
inputs usedfortheprocessing ormanufacturing ofexport products.
(l) Foreign exchange retention scheme isalsointroduced inorder toencourage exporters.
Inaddition,
- Inaneffort topromote foreign trade, anExport Promotion Committee, chaired by
thePrime Minister, hasbeenestablished withrepresentatives fromrelevant Ministries
andthebusiness community.
- With technical assistance from UNCTAD/ITC, aTrade Point isbeing setup.
- Anexport strategy isbeing worked outinvolving consultants provided bytheWorld
Bank.
- AneworganizationalsetuphasbeenpreparedforrestructuringChambersofCommerce
inaccordance withtheFederal Government system.WT/L/229
Page5
4. Foreign trade regime
(a) Customs tariff nomenclature
Ethiopia isamember oftheWorld Customs Organization (WCO). Before acceding
totheInternational Convention onHarmonized Description andCoding System, thenational
tariff structure wasbased onBrussels Tariff Nomenclature (BTN). Ethiopia usedtheBTN
for17years untilAugust 1993, thatisuntilitwasreplaced bytheHarmonized System (HS)
tariff structure. According totheHStariffs, mostofthegoods imported previously dutyfree
andthose withspecific dutyrateswere replaced byadvalorem rate. Inthetariff structure
goods, whether dutiable ornot,aregiven atariff codeandclassified onthebasisoftheirtype
andcharacteristics into21sections and99chapters. Thecurrent rateranges from5to50per
cent.
(b) Application ofinternal taxes onimport
Apart fromcustoms dutythereispayment ofsalesandexcise taxesonimported goods.
IntheHStariff structure, some goods areexempted fromthepayment ofsalestaxandexcise
tax.Theamount ofsalestaxis5percentor12percentofthevalue ofthegoods depending
onthenature ofthegood. Thehighest rateofexcise taxis200percentandthelowest is
10percent.
(c) Tariff preferences
Ethiopiaenjoysthreemultilateraltariffpreferences.Thosemultilateraltradepreferences
infavour ofEthiopia are:
- Generalized System ofPreferences (GSP);
- Lome Convention under theEuropean Union -Africa, Caribbean andPacific
States (EU-ACP); and
- Common Market forEastern andSouthern African States (COMESA)
(d) Tariff exemption
InEthiopiatariffexemptionisbasedoninternationalagreementsandnationalregulations
suchastheInvestment Code.
(e) Other duties andcharges
There isaservice charge of2Birrforthehandling ofgoods. There isalsowarehouse
feeforgoods which stayinthecustoms warehouse starting from thefirstdayofentrance to
thewarehouse according totheirweight, size,etc.
(f) Import restrictions
Except those items which aresocially andmorally harmful (e.g. drugs, arms and
pornographic materials), there isneither import bannorquantitative import restriction.
Nevertheless, imports havetofulfilthestandards oftheEthiopian Authority forStandardization.WT/L/229
Page6
(g) Customs Valuation
Ethiopiahasnotaccededtoanyinternationalagreementoncustomsvaluation.Itfollows
itsownvaluation system. Inthecustoms lawofthecountry thereisaprovision toaccept bona-
fidesmanufacturer invoices asthetruevalue ofimported goods. Butinsome articles ofthe
customs law,itisalsostated thatmanufacturer invoices willnotnecessarily beregarded as
conclusive evidence, andtheCustoms Authority willemploy allavailable means todetermine
thecorrect dutypaying value ofthegoods.
IntheEthiopian customs law,thereisamethod oraformula provided tobeusedwhen
nomanufacturer invoices areproduced bytheimporters, andwhen theinvoices presented to
Customs Authority areconsidered tobenotsatisfactory. Inthiscasethedutypaying value
isdetermined from thewholesale market value bydeductive method. Thismethod ismore
orlesssimilar toArticle 6oftheWTO 's"Rules oncustoms valuation".
(h) Customs formality
EthiopiahasnotaccededtotheKyotoconventiononthesimplificationandharmonization
ofcustoms procedures. However, thestandards setoutbytheconvention havebeenmore
orlessadopted bythenational customs legislation aswellasthecustoms clearance andcontrol
manual.
(i) Export regulation
There arenoexport levies (except oncoffee), export quota andexport subsidies. When
applying foranexport permit, which isissued bytheNational Bank ofEthiopia, anexporter
must specify thegoods tobeexported, theirdestination andselling price. Thisexercise is
required toavoid under invoicing.
(j) Business licensing
Allbusinessmen involved inforeign tradearerequired bylawtoobtain licences from
theMinistry ofTrade andIndustry.