ETHIOPIA: Joining the WTO? The Challenge of Customs Valuation

JURIST Staffer Eric Linge, Pitt Law '10, from Addis Ababa...

Joining the World Trade Organization (WTO) is not easy. Especially for a country like Ethiopia that has a history of communism to unwind, reams of technical laws have to be rewritten to be WTO compliant. But before legislators even sit down to rewrite laws, there is much apprehension. The WTO promises change to a nation's import export balance sheet, and this promise scares politicians and business owners alike. An Ethiopian hotel owner told me that if the tourism sector were further liberalized, surely foreign hotel chains like Holiday Inn would enter the market and crush locals like him.

In Ethiopia there is a general lack of knowledge about the nuts and bolts of WTO membership among business owners and politicians alike. The WTO is most famous for its organizational goal — to facilitate international trade by reducing barriers to trade: tariffs, subsidies, import quotas, et cetera. To many Ethiopian business owners and politicians, any change is scary. But an often-cited reason for the fear — and it may be just a convenient reason — is that WTO membership will force Ethiopians to compete with foreign businesses.

What these politicians and business owners miss are the benefits that membership would bring to anyone already doing business in Ethiopia. WTO member countries are required to implement and maintain an international standard of transparency, predictability, and consistency in their commercial legal regime. Even if an LDC (least developed country) like Ethiopia did not immediately benefit from increased trade revenue as a WTO member, implementing international commercial law standards could make business owners more likely to reinvest profits in their businesses and could inspire foreigners to invest. For example, if Ethiopia joins the WTO, tariff rates must be bound at an upper limit. This means that an importer would not discover one day that his normal tariff rate had recently been raised 100 percent.

Another major benefit that WTO membership would bring is reform of customs valuations. The current state of customs valuation in Ethiopia demonstrates the frustrating lack of predictability to many laws in Ethiopia. With a small manufacturing base, Ethiopia is a country heavily reliant on imports, and customs duties must be paid on these imports. Generally, the customs duty is a percentage of the total value of the good being imported, and this is what the WTO requires, save for some fallback valuation methods. However, the WTO requires the duty to be paid on a good's "actual value," which is rarely reflected in Ethiopian valuation methods.

Ethiopia's valuation method on used vehicles (used vehicles are imported much more than new) is unique and would not be compliant with any of the WTO valuation methods. The customs value is based on what a database says the value was when the vehicle was new. A depreciation allowance of 10 percent per year with a maximum allowance of 30 percent is then deducted to arrive at the customs value. This means that for all vehicles more than three years old, the customs value will never fall below 70 percent. Never mind that vehicles by their nature depreciate rapidly. This practice leads to the overpricing of used vehicles in Ethiopian markets, and the valuation method appears to have no purpose other than to earn extra revenue for the government.

Most other goods are valued at their listing in a published valuation database separate from the vehicle database, and often these values do not reflect a good's actual value. This published valuation database sometimes contains multiple listings for the same good with different prices for each listing, and customs officers have been known to use versions of the database that have been outdated for years. In other words, an importer does not always know for sure what he will pay.

If customs valuation is reformed and stabilized, importers will become more interested in conducting business within Ethiopia, and foreign investors would be more inspired to invest in the nation's economy. This investment is just one example of a benefit that membership in the WTO would bring to Ethiopia's business owners. If they and politicians recognized the economic benefits of reform driven by the WTO's mandated international standards, they would be more likely to support WTO membership.

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