WORLD TRADE
ORGANIZATIONWT/L/445
11 January 2002
(02-0137)
Original:  English
ETHIOPIA - REQUEST FOR EXTENSION OF OBSERVER STATUS
Communication from Ethiopia
The following communication, dated 25 December 2001, has been received by the Director-
General from the Minister of State, Ministry of Trade and Industry of Ethiopia, with the request that it
be placed before the General Council at its next meeting.
_______________
On behalf of the Government of the Federal Democratic Republic of Ethiopia (FDRE), I have
the honour to submit the request of the Government of the FDRE for an extension of its observer
status in the General Council of the World Trade Organization (WTO) and its subsidiary bodies,which is due to expire in October 2002.
In this connection, I should like to state that it is the intention of the Government of the FDRE
to initiate negotiation for accession to the WTO Agreements in the near future.  Meanwhile, the
extended observer status would help the Government  of the FDRE to better acquaint itself with the
WTO and its activities, and to fully prepare and initiate negotiations for accession to the WTO
Agreements.
In accordance with the "Guidelines for Observer Status for Governments in the WTO", I am
enclosing herewith Ethiopia's current economic policy, foreign trade regime and its future plan in
relation to initiating accession negotiation.WT/L/445
Page 2
ETHIOPIA'S ECONOMIC AND TRADE POLICIES,
AND FOREIGN TRADE REGIME
I. INTRODUCTION
1. With a surface area of 1.1 million square kilometers, roughly the size of France and Spain
combined, and a population of about 63.5 million in 2000, Ethiopia stands as the fifth largest in size
and third most populous country in Africa.
2. In the last three decades, the Ethiopian economy has undergone major transformation, passing
from a feudal to a socialist system and since 1991 reorienting to an open market-based economy.  The
17 (1974-1991) of economic mismanagement under the socialist system left the economy, by the turn
of the 90s, in deep crisis which manifested itself in a very weak economy, severe macroeconomicinstability and social crisis.
3. Since 1992, the new Government has implemented major economic reforms as part of a
Structural Adjustment Programme designed to stabilize, restructure and rehabilitate the economy.
Even though the progress made in the last ten years (1992-2000) is encouraging, Ethiopia is still far
from securing sustainable development. .
II. THE STRUCTURE OF THE ECONOMY
4. The Ethiopian economy is dominated by agriculture that accounts for about 50 per cent of
total Gross Domestic Product (GDP) and 85 per cent of export and total employment.  he country's
export is highly dependent on a single crop, coffee, generating nearly 53 per cent of the foreign
exchange earnings in 2000.  Agriculture is supple mented by manufacturing, mining, trade, tourism,
construction and services that have a combined share of about 50 per cent of GDP.
5. The industrial sector, which contributes about 12 per cent of GDP, supplies important
consumer goods both to the domestic and international markets.  The main manufacturing products
are textiles, foodstuffs, tobacco, beverages, cement, leather and leather products, wood, metallic and
non-metallic products.  The main manufacturing export products include leather and leather productsand frozen meat.
6. Even though the mining sector currently contributes less than 1 per cent to GDP, there are
proven reserves of industrial minerals and precious metals such as gold, platinum, tantalum, iron ore,
marble, potash and natural gas which can economically be exploited.
7. On the other hand, the service sector makes up about 38 per cent of GDP and its significant
contribution stems from the relatively large investment expended on the sector, notably on
health-related and social services, tourism and travel-related services, construction and relatedengineering services and financial services.
III. CURRENT TRENDS OF THE FOREIGN TRADE SECTOR
8. The foreign trade sector plays an important role in generating employment and income as
well as being a source of foreign exchange earning.  During the 1960's and the first half of the 1970's
some efforts had been exerted to expand exports and imports. However, from the second half of the1970's up to the early 1990's, the protracted civil war and erroneous economic policies of the past
regime had thwarted these efforts.  These threats have been averted by the change of policies that took
place in May 1991, and since then the economic conditions in general and the foreign trade sector inWT/L/445
Page 3
particular have shown significant improvements.  For instance, export has grown by 35 per cent
within the last seven years.
(a) Structure of export
9. A great part of the total export earning is account ed for by the agricultural sector in the form
of raw or semi-processed commodities.  The export sector is based mainly on agricultural productssuch as coffee, hides and skins, oilseeds and pulses.  These three major groups of commodities made
up about 70.3 per cent of the export earning of the country in 2000.  In terms of value, export has
grown at an average annual rate of 3.1 pe r cent over the last five years (1996-2000).
10. The structure of the export sector could fall under four major categories, namely: food and
live animals, hides and skins, oilseeds and pulses and miscellaneous products.  The first category
consists mainly of coffee, fruits and vegetables, live animals, and meat and meat products, while the
second one consists  of semi-processed cattle hides, semi-processed sheep and goat skins and leather
products.  Major export commodities of the third category are sesame seeds and haricot beans (pea
beans).  Miscellaneous products include natural gums, spices, petroleum products, beeswax and cut
flower.
(i) Coffee
11. While the present effort of the country concentrates on diversifying its exports, due
consideration has also been given to increase the volume and quality of exportable coffee, the major
source of the foreign exchange earning.  The government has also taken note of the fact that
improvements in the volume and value of coffee exports can only be achieved by undertaking various
activities including measures to increase the share of washed coffee, exporting roasted and grounded
coffee and by producing water soluble coffee extracts.
(ii) Leather
12. The leather and leather products sub-sector also occupies a special position in the economy
and yet with considerable potential for expansion.  The production potential for these products is
directly related to the production potential of cattle, sheep and goats rearing.  However, the export
potential is constrained by the relatively low level of investment in this sub-sector.  At present, efforts
are exerted to move from semi-processed leather to finished leather and leather garments.
(iii) Meat
13. Exporting meat and meat products, naturally, encourages the expansion of the leather and
leather products sub-sector, apart from generating more value-added and employment opportunities.
However, lack of modern technology and high investment requirements as well as stringent quality
control and sanitary standards of importing countries have constrained the development of this
sub-sector.  In the export development efforts of this sector, foreign capital inflows either in the formof direct investment and/or joint venture arrangements are needed.
(iv) Oil Seeds and pulses
14. Although most oil seeds and pulses are produced mainly for domestic consumption, some of
them, particularly sesame seeds and haricot beans, are produced primarily for the export market.
While the productivity of oil seeds and pulses is currently at a relatively low level, there isnevertheless a significant potential for increasing production and exports through the use of improved
farm practices, modern technology, and agricultural inputs.WT/L/445
Page 4
(v)  Horticulture and floriculture
15. Ethiopia has obvious resource advantages in the exports of flowers, vegetables and fruits.
But, to be competitive in world markets, improv ement needs to be injected in the areas such as
harvesting, packaging and transportation.  The latter includes refrigerated vehicles, cold storage
facilities at the airports and efficient air links to foreign destination.
(vi)  Textiles
16. The domestic potential of cotton production, as a basic raw material to the textile fabrics and
garments, is already established and the availability of abundant and hard working labour force is the
major parameter for considering this sector as one of the strategic industries.  Textile export is a very
recent phenomenon for the country.  The factories were set up primarily for import substitution
purpose and as such were neither technically nor managerially equipped to enter the export market.
But they could easily be rehabilitated with an extension of marketing networks, and enhancing humanresource capability and financial strengthening.
(vii) Minerals
17. Although there are diversified mineral deposits available in many parts of the country, to date
there has been very little exploitation of these resources owing mainly to lack of investment and
appropriate technology.  In addition to the efforts underway to increase the export supply of theseproducts and to improve their quality, investments in the exploration and export of other currently
unexploited mineral products is highly encouraged.  Recognizing that huge investment is needed to
exploit the country's mineral resources and for the sector to provide meaningful contribution to the
foreign exchange earnings, various incentives ar e currently being provided to encourage foreign
investment.
(b) Structure of import
18. The structure of the import sector has remained unchanged for a long period of time, virtually
with no significant shift among the categories.  Ethiopia's import commodities fall under five major
categories, namely: food items, textiles, machinery and transport equipment, manufactured articles,and petroleum products.  Their average share to the total import was 18 per cent, 10 per cent, 35 per
cent, 23 per cent and 14 per cent respectively.  In value terms, Ethiopia's import has grown at an
average rate of 4.6 per cent per annum during the past five years (1996-2000).
19. Among the imported goods the share of semi-finished goods and petroleum products has
increased significantly after the reform period, where as the share of the other commodities has
relatively slowed down.  Hence, a structural shift has slightly occurred in favour of the former two
commodities that are deemed necessary for the recent reactivation of the Ethiopian economy.
IV. FOREIGN TRADE POLICY
20. The trade policy of Ethiopia is believed to accelerate the process of economic development of
the country by augmenting its competitive capacity a nd efficiency at the international level.  The
current trade policy, unlike those of the past, is also weighed as the main catalyst for revamping the
economic activities and aimed at integrating the country into global markets.  The policy is designedprimarily to foster the participation of the private sector.
21. To ensure adequate private capital participation in the foreign trade sector, the previous
monopoly of the state has been abolished.  Instead, the Government's role is limited to creating anWT/L/445
Page 5
enabling environment.  The Government has also issued foreign exchange and import-export
regulations in order to facilitate the active involvement of the private sector.
22. To promote foreign trade and use foreign exchange prudently, incentives such as foreign
exchange retention and export credit guarantee schemes are being provided to exporters.  The tariff
regime has been revised periodically and the maximum rate is reduced from 230 per cent before thereform to 40 per cent currently.  Quantitative restrictions are replaced with tariffs, negative import
lists were removed except used clothes and those items which are socially or morally harmful such as
drugs, arms and pornographic materials, and investment in export oriented activities is highly
encouraged through continuous amendment of the Investment Code.
23. The Government has periodically tried to improve the provision of efficient and transparent
modes of service delivery to stakeholders in general, and to the private sector in particular in the
customs and inland tax administration, judicial system, public utilities and financial sectors.
- Export development strategy
24. The Government has designed an Export Development Strategy to promote exports
significantly and provide an organized support services to exporters.  The strategy is based on the
country's overall economic development strategy known as Agricultural Development-LedIndustrialization (ADLI).  The obje ctives of the strategy are to:
(a) create adequate markets so as to sustain the growth of the agricultural sector;
(b) generate foreign exchange necessary for the overall economic development; and
(c) ensure the promotion of an internationally competitive industry.
In order to implement these objectives effectively, an Export Promotion Agency has been set up.
Different government Ministries, Agencies and the private sector are involved in carrying out the
objectives of the strategy.
V. FOREIGN TRADE REGIME
1. Customs tariff nomenclature
25. Ethiopia is a member of the World Cust oms Organization.  Before acceding to the
International Convention on Harmonized Descripti on and Coding System (HS) in August 1993, the
national tariff structure was based on Brussels Tariff Nomenclature (BTN).  According to the HS
tariffs, most of the goods imported previously duty-free and those with specific duty rates were
replaced by ad valorem  rate.  In the tariff structure, goods, whether dutiable or not, are given a tariff
code and classified on the basis of their type and characteristics into 21 sections and 97 chapters.
26. The current tariff rate ranges from 0-40 per cent.  There are seven brackets for customs duty
rates, namely 0, 5, 10, 15, 20, 30 and 40.
2. Application of internal taxes on import
27. Apart from customs duty, there is payment of sales and excise taxes on imported goods.  In
the HS tariff structure, some goods are exempted from the payment of sales and excise taxes.WT/L/445
Page 6
(a) Sales tax
28. The rates of sales tax are 0 per cent, 5 per cent and 12 per cent of the value of the goods.  Five
per cent for a selected list of agricultural goods such as live animals and products, vegetables and
fruits and unprocessed cereals, food, pharmaceuticals, books and printed materials, hides and skins,
and cotton when either produced locally or imported.  The rate is 12 per cent for all other products.Sales tax is collected from the producer, importer or the person rendering services as the case may be,
and paid to the Inland Revenue Authority.
(b) Excise tax
29. Excise tax is levied on selected items when produced locally or imported from abroad.  The
tax rate ranges from 0 to 150 per cent.  The tax brackets for excise tax are 12, namely, 0, 10, 20, 30,
33, 40, 50, 60, 75, 100, 110 and 150.  Ten per cent in the case of textile and television broadcasting
receivers and 150 per cent in the case of alcohol.  Excise tax is payable on goods imported fromabroad by the importer at the time of clearing the goods from the customs area.
3. Other duties and charges
30. There is a birr 2 (equivalent to 0.23 US$) duty stamp fee for every declaration of import.
There is also a warehouse fee for goods which stay in the customs warehouse starting from the first
day of entrance to the warehouse according to their weight and size.
4. Tariff exemption
31. Tariff exemption is based on the International Vienna Convention and Diplomatic and
Consular National Regulation No. 252/60 which allow, among others, duty-free import of goods and
personal effects of Embassies, Diplomats and international organization staff.
32. Government and non-government organizations  are also allowed to import duty-free all
capital goods for a project if the project is accepted by the Ethiopian Investment Authority.
5. Tariff preferences
33. Ethiopian exports enjoy duty- and quota-free access in the European Union market under the
Everything But Arms (EBA) initiative.  Ethiopia is also eligible for African Opportunity and Growth
Act (AGOA) under the Trade and Development Act of the United States.  In addition to EBA andAGOA, a wide range of Ethiopia's manufactured products are entitled to preferential duty treatment in
many developed countries' market under the Generalized System of Preferences (GSP).
6. Import restrictions
34. Except those items which are socially or morally harmful (e.g. drugs, arms and pornographic
materials), there is neither import ban nor quantitative restriction.  Nevertheless, some imports have to
fulfil the standards of Quality and Standards Authority of Ethiopia, especially food and chemical
products.
7. Customs valuation
35. Ethiopia has already adopted the WTO principle and methods of customs valuation under
Proclamation No. 60/1989.WT/L/445
Page 7
8. Customs formality
36. Although Ethiopia has not acceded to the Kyoto Convention on the Simplification and
Harmonization of Customs Procedures, the standards set out by the Convention have been more or
less adopted by the national customs legislation as well as customs clearance and control manual.
9. Import licensing
37. Laws and regulations in Ethiopia with respect to import licensing procedures are formulated
in such a way that they could protect the interest of importers by abolishing most trade barriers.  It is
applied in fair and equitable manner for those legally eligible to apply and it has no restrictive and
distortive effect.  It is mainly used for the purposes of price verification and effective utilization of
outstanding foreign exchange given to the importers.
38. Most of the provisions of the licensing procedure are similar to those which are required for
automatic import licensing procedures except that li censes are issued prior to the arrival of the goods
at customs point.
10. Import/export regulations
39. Commercial banks, which are licensed to operate in Ethiopia, are authorized to allow imports
and exports and provide associated services against submission of the required documents by the
importer and exporter.
(a) Import regulation
40. The documents submitted by importer are related to imports by Letter of Credit (L/C), Cash
Against Documents (CAD) and Advance Payment.  Commercial Banks can also approve imports for
any values.  However, import values of US$1 million and above are subject to open international
competitive bidding.  Commercial Banks can also allow eligible applicants to import goods undersupplier credit.
41. Depending on the product to be imported, certificates from the Ministry of Health (for
medicines and other related medical equipment), from  the Ministry of Agriculture (for agricultural
chemical and veterinary medicines), and from Qual ity and Standards Authority of Ethiopia (for goods
such as food items which require standardization) are required.  Specification approval from theEthiopian Roads Authority for all imported vehicles is also required.
(b) Export regulation
42. No person, natural and juridical, may export or enter into any commitment to export valuable
goods without the prior approval of the authorized Commercial Bank and unless the exporter
undertakes to surrender the resultant sales proceeds in foreign exchange to an authorized Bank either
before the actual export, at the time of export or within a period of not later than three months.  In
addition, all payments for valuable goods should be made in foreign exchange or by the debit of aNon-Resident Transferable Birr or Foreign Currency Account maintained with commercial banks by
their correspondent banks abroad.
43. Commercial Banks are authorized to allow exports under one of the three modes of payments,
namely, letter of credit, advance payment and consignment.  Commercial Banks can also allow small
export items to tourists, foreign residents or Ethiopian nationals who wish to take souvenirs out of thecountry.WT/L/445
Page 8
(c) Foreign exchange regulation
44. For the purchase of foreign exchange, an inter-bank market for foreign exchange has been
established and transaction weighted average inter-bank exchange rate is being determined on a daily
basis.  Exporters are able to sell their foreign exchange receipts to any commercial bank at freely
negotiated rates over an extended conversion period of four weeks, and they can retain the remaining10 per cent in a foreign currency deposit account.  Exporters are also free to use the foreign exchange
remitted to the country for any bona fide  imports of goods and services within the conversion period.
VI. TRADE POLICY FORMULATING AND IMPLEMENTING ORGANS
45. Overall trade policy formulation, implementation, enforcement and monitoring is the duty and
responsibility of the Ministry of Trade and Industry.  On the implementation phase of the trade policy
other ministries and agencies such as the Ministry of Health (on pharmaceuticals), the Ministry of
Agriculture (on veterinary drugs), the Ministry of  Finance and the Ethiopian Customs Authority (on
fiscal policies), and the National Bank of Ethiopia (on foreign exchange regulation) are also involved
as regulatory bodies.
VII. ETHIOPIA AND THE WTO
46. Ethiopia has neither been a party to GATT nor a Member to the WTO.  It has, however,
secured an observer status in the WTO in October 1997.
47. As an observer status does mean to get well acquainted and be familiarized with the WTO
Agreements and the working of the multilateral trading system as well as building a negotiating
capacity, the Ethiopian Government had commissioned a study to assess the full implication of the
WTO Agreements on Ethiopia's economic policy and sectoral strategies.  The findings of the study
were submitted to the Government for comments and decision.  On top of this, in order to createawareness among different stakeholders in Ethiopia about the multilateral trading system and the
WTO framework, two similar national workshops have been organized in 1998 and 1999 in
collaboration with the WTO and UNCTAD Secretariats respectively.
48. It has been observed that Ethiopia's capacity in terms of understanding, negotiating and
applying the various WTO Agreements at institutional level is quite unsatisfactory.
49. The Government of Ethiopia, therefore, decided that further internal preparation and
awareness creation is necessary and request should be made to the WTO Secretariat for a second term
observer status.
__________