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Viewing cable 08ADDISABABA1299, EXCEPTIONAL ISSUANCE OF IMPORT LICENSES TO CHINESE FIRMS

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Reference ID Created Released Classification Origin
08ADDISABABA1299 2008-05-14 08:37 2011-08-25 00:00 UNCLASSIFIED Embassy Addis Ababa
VZCZCXRO3834
RR RUEHROV
DE RUEHDS #1299 1350837
ZNR UUUUU ZZH
R 140837Z MAY 08
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 0577
INFO RUCNIAD/IGAD COLLECTIVE
UNCLAS ADDIS ABABA 001299 
 
SIPDIS 
DEPARTMENT PASS TO USTR - BILL JACKSON, CECILIA KLEIN, AND BARBARA 
GRYNIEWICZ 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EAGR ET EEB
 
SUBJECT: EXCEPTIONAL ISSUANCE OF IMPORT LICENSES TO CHINESE FIRMS 
 
 
SUMMARY 
1.  The influence of the Chinese Government on Ethiopian economic 
sectors continues to gain traction. The Ethiopian Council of 
Ministers recently approved an exception to issued licenses 
previously reserved for domestic investors to two Chinese government 
firms to import and distribute heavy construction machinery to 
Ethiopia. This exemption raises questions about Ethiopia's 
commitment to liberalizing its trade regime and treating trading 
partners equitably just as the country readies to commence 
consultations on WTO accession.  End Summary. 
BACKGROUND 
2. Investment proclamation No.37/1996 separates investors into two 
categories: domestic and foreign. Domestic investors are Ethiopian 
nationals or foreign nationals permanently residing in Ethiopia 
(i.e. the 2nd and 3rd generation of Greeks, Armenians, Italians and 
Yemenis in Ethiopia) who have made investments in-country. By 
contrast, foreign investors are foreign nationals or foreign 
enterprises owned by foreign nationals who have invested foreign 
capital in Ethiopia.  An Ethiopian national may be considered to be 
both a domestic and foreign investor depending upon his or her 
citizenship, residence status and personal preference.  Per the 
Ethiopian Government Council of Ministers Regulations No 35/1998 and 
84/2003, a reenactment of Investment proclamation No. 280/2003, 
there are eighteen investment areas reserved for domestic investors 
and four reserved exclusively for Ethiopians. Retail trade and 
brokerage, whole sale trade, import trade, and printing are among 
the list of domestically reserved investments, while banking and 
insurance and broadcasting services belong to investment reserved 
for Ethiopian nationals exclusively. 
3. Citing the shortage of construction materials and machinery, 
Ethiopia's Vice Minister for Urban Works and Development, Arkebe 
Equbay, announced on April 13th that the Council of Ministers, had 
approved and granted exceptional import licenses to two Chinese 
government owned companies, China Road and Bridge Corporation (CRBC) 
and China Geotechnical Overseas Company (CGC). These particular 
Chinese companies will be allowed to transport 100 units of loaders, 
2,000 mini trucks and 100 stone crushers into the country. CRBC and 
CGC have been engaged in major construction jobs in Ethiopia, 
including Ring Road highway and the Gottera Overpass in both Addis 
Ababa and other regions.  While the Investment Law reserves import 
trade for domestic investors - except for the importation of inputs 
for products intended for export - it allows the Council of 
Ministers to approve additional import licenses on an exceptional 
basis per article 5 of Proclamation No. 4/1995 and article 9 of the 
Investment Proclamation No. 37/1996. According to the Vice Minister, 
an exemption for the Chinese firms will allow them to sell the 
machinery in local currency without using Ethiopia's depleted 
foreign currency reserve. 
QUESTIONS FOR WTO ACCESSION 
4. The Council of Ministers decision may further exacerbate the 
extremely difficult environment in which foreign businesses operate. 
Pre-existing unfavorable operating conditions, such as high taxes, 
crushing bureaucracy, competing public and party-affiliated 
companies, disadvantage foreign companies.  The exemption granted in 
this case creates an appearance of favoritism toward the Chinese. 
Such preference appears inconsistent with the general WTO principle 
of "Most Favored Nation," and highlights how American and other 
foreign businesses are impeded by an un-level playing field.  In 
light of the first round of "Working Party" consultations on 
Ethiopia's WTO accession bid - expected to begin in May - this step 
raises questions about Ethiopia's commitment to the reforms/ 
liberalization necessary for WTO accession. With an eye towards 
transparency, had Ethiopia been a WTO member, extension of 
liberalization privileges would come in the form of negotiated 
agreement. Under the MFN, preference given to one WTO member country 
would need to be extended to all WTO member countries.  Embassy 
Addis has specifically raised this decision with USTR colleagues as 
a point for discussion as Working Party consultations proceed. 
COMMENT 
5. Although the Council of Ministers can exercise the authority to 
amend license issuance, these actions either call into question 
Ethiopia's commitment to adhere to WTO guiding principles or 
highlight the lack of senior Ethiopian government awareness of the 
country's obligations once it becomes a WTO member.. This current 
maneuver will also heavily affect local importers of machineries 
since access to payments in foreign currency to their foreign 
suppliers will be limited. 
YAMAMOTO