Preparedness of the Ethiopian Private Sector to benefit from WTO Accession

1. Preparedness of the Ethiopian Private Sector to benefit from WTO Accession National PSD Conference“Competitiveness of the Ethiopian Private Sector: New Challenges, New Opportunities” Hilton Hotel Addis Ababa 30 June 2009 Derk Bienen

2. Preparedness of the Ethiopian Private Sector for WTO Accession5 Guiding Questions • WTO accession – where does Ethiopia stand? • What is the broader context of WTO accession? • What’s at stake for the Ethiopian private sector? • Which policies are there to assist the Ethiopian private sector’s competitiveness in view of WTO accession? • What should the Ethiopian private sector do to benefit from WTO accession? Offensive interests: Competitiveness on world markets Defensive interests: Competitiveness on the domestic market

3. (1) Where does Ethiopia stand?The current status of and road map for WTO accession • Ethiopia‘s Application for WTO Membership: January 2003 • Memorandum on Foreign Trade Regime submitted December 2006 • First Working Party Meeting: May 2008 • Market Access negotiations to start • Planned accession: 2013?

4. (2) What is the broader context of WTO accession? Ethiopia’s foreign trade policies and the global situation Regional context • COMESA Free Trade Area • Economic Partnership Agreement (EPA) with the European Union • Intergovernmental Authority on Development (IGAD) Global developments • Financial crisis and rising protectionism (USA, Europe, China) • State of Doha negotiations

5. (3) What’s at Stake?Interests of the Ethiopian private sector in WTO accession • Offensive interests:Export opportunities generated by WTO accession • Defensive interests:Increase in competition on the domestic market caused by WTO accession • Offensive and defensive interests concern different sectors and industries • There is no interest of THE Ethiopian private sector but there will be different (and potentially conflicting) interests and positions

6. (3) What’s at Stake? – Export CompetitivenessOffensive interests of the Ethiopian private sector in WTO accession (1) • Better market access for Ethiopia‘s exports to WTO Members? • No because Ethiopia is an LDC: duty- and quota-free access schemes (EBA, AGOA, etc.) – which is better than MFN access • Yes because unilateral preference schemes can be withdrawn unilaterally • but: DDA discusses conversion of unilateral preference instruments into multilateral and permanent schemes

7. (3) What’s at Stake? – Export Competitiveness Offensive interests of the Ethiopian private sector in WTO accession (2)  Likely effect of WTO accession for Ethiopian exports • Short run: no effect • Long run: Enhanced predictability of market access – but unilateral privileges for LDCs are unlikely to be withdrawn arbitrarily • Real challenge for Ethiopia’s exports: • concentration of exports in few commodities • poor production and supply capacity, limited competitiveness • bad geography (terrain and sea access) and • poor infrastructure

8. (4) Which policies are there to assist the Ethiopian private sector’s export competitiveness in view of WTO accession? • Basis: Agricultural Development Led Industrialisation (ADLI) • Industrial Development Strategy (IDS) • focus on labour intensive industrial inputs and consumption goods for agriculture and value added/processed agricultural goods, especially for exports • too broad, lack of an implementation strategy • Current incentive schemes: approx. 10 investment and export incentive schemes (ETDIS, Investment Regulation, etc.) exist but are not focused on certain sectors  There is no clear implementable strategy to enhance export competitiveness

9. (5) What needs to be done for Ethiopia’s (potential) exporters to benefit from WTO accession? • Urge Government to transform IDS into a focused support programme for (potential) export sectors • Urge Government to further develop economic infrastructure • Put in place a system to support exporters in dealing with market access restrictions, notably those related to quality and standards • Establish a trade information centre providing information about export opportunities and market access conditions in Ethiopia‘s trading partners

10. (3) What’s at Stake? – Domestic CompetitivenessDefensive interests of the Ethiopian private sector in WTO accession (1) • More competition on the domestic market due to increased imports? Issues to consider: • Imports of goods: • Tariff reductions? • Are tariff reductions and increases in imports good or bad for the Ethiopian private sector? • Imports of services: foreign investment • Other issues (competition policy, public procurement, customs fees and procedures, etc.)

11. (3) What’s at Stake? – Domestic CompetitivenessDefensive interests of the Ethiopian private sector in WTO accession (2): Goods • Will Ethiopia have to reduce tariffs because of WTO accession? • Short run: Unlikely, as WTO accession requires to bind tariffs at certain maximum levels which are usually higher than applied tariffs • Long run: Progressive liberalisation will mean that bound tariffs would be reduced in future WTO Rounds

12. (3) What’s at Stake? – Domestic CompetitivenessDefensive interests of the Ethiopian private sector in WTO accession (3): Goods • How would reduced tariffs & higher imports affect the competitiveness of the Ethiopian private sector? • Positively: • If imports concern inputs of Ethiopian industries which are not domestically produced • If Ethiopian firms can adjust to foreign competition and become internationally competitive • Negatively: • If Ethiopian firms cannot adjust to foreign competition and close down

13. (3) What’s at Stake? – Domestic CompetitivenessDefensive interests of the Ethiopian private sector in WTO accession (4): Services • Ethiopia will be expected to make commitments regarding the openness of its services sectors • Unlike in goods, WTO Members are likely to expect an actual opening up key sectors: • E.g. financial services and telecom • In particular by allowing foreign investors • Effect on the Ethiopian private sector? • Overall effect positive in services sectors which are inputs or other sectors as far as increased competition leads to better quality of services and/or lower prices • Effect on current domestic firms in the concerned service sector negative, if they are displaced by foreign competitors

14. (4) Which policies are there to assist the Ethiopian private sector’s domestic competitiveness in view of WTO accession? • Presently no strategy to support the Ethiopian private sector against potentially increasing international competition • Dumping addressed in Trade Practice Proclamation – but not effective • Government has so far rejected private sector calls for protection • Some sectors reserved for domestic investors – but does this alone contribute to competitiveness? • Example: financial and transportation services sectors

15. (5) What needs to be done for Ethiopia’s firms competing with imports to benefit from WTO accession? • Urge Government to develop a focused support programme for key sectors likely to be affected by foreign competition • Objective: open these sectors but ensure that domestic firms are not displaced • This will mainly concern services sectors • Urge Government to implement a trade defence system in line with WTO rules and effective upon accession

16. Summary: Preparedness of the Ethiopian private sector for WTO accession? • WTO accession will have a limited effect on the Ethiopian private sector over the short term • But accession will change the rules of the game, and competition will increase in the medium and long run • Measures to enhance the competitiveness of the private sector – such as those recommended here – should be taken sooner rather than later, because they need several years to implement and yield results

17. Preparedness of the Ethiopian Private Sector to benefit from WTO Accession Thank you! Derk Bienen d.bienen@bkp-development.de http://www.bkp-development.de Romanstr. 74, 80639 München, Germany