Biden says Ethiopia will lose duty-free trade access over Tigray conflict

2/2 © Reuters. U.S. President Joe Biden speaks during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain November 1, 2021. Evan Vucci/ Pool via REUTERS 2/2

By Simon Lewis, Humeyra Pamuk and Nellie Peyton

WASHINGTON (Reuters) -President Joe Biden acted on Tuesday to cut Ethiopia off from duty-free trade access to the United States over human rights violations, the strongest response yet to the conflict in the region of Tigray that has caused mass displacement and famine.

Biden said in a letter to Congress that he intends to remove Ethiopia - as well as two other African nations, Mali and Guinea, where military leaders have seized power in recent coups - from the U.S. African Growth and Opportunity Act (AGOA).

The move, set to take effect on Jan. 1, came as Ethiopia declared https://www.reuters.com/world/africa/addis-ababa-government-urges-residents-register-arms-media-2021-11-02 a state of emergency after Tigrayan forces said they were gaining territory and considering marching on the capital Addis Ababa.

The suspension of benefits threatens https://www.reuters.com/world/africa/ethiopian-textile-industry-risk-if-us-suspends-trade-deal-over-tigray-war-2021-10-28 Ethiopia's textile industry, which supplies global fashion brands, and the country's nascent hopes of becoming a light manufacturing hub. It will also pile more pressure on an economy reeling from the conflict, the coronavirus pandemic, and nearly 35% inflation.

The war broke out in November 2020, dashing hopes for stability and development in Ethiopia under Prime Minister Abiy Ahmed, who won the 2019 Nobel Peace Prize for his role in a peace deal with Eritrea.

Allegations of widespread sexual violence and mass killings of civilians have been leveled against forces in the conflict, including government troops. The Ethiopian government says it is investigating the claims.

Washington had warned Ethiopia for months that it risked losing its trade access, U.S. Horn of Africa envoy Jeffrey Feltman said. He added that Ethiopia must take urgent action like entering negotiations for de-escalation and a ceasefire in order to avoid the cut-off of trade access.

"Ethiopia does not have to lose the AGOA eligibility if it takes certain steps in the days ahead, and that's what we hope will happen," Feltman told the U.S. Institute of Peace in Washington.

U.S. Trade Representative Katherine Tai said she would provide Ethiopia, Mali and Guinea with clear benchmarks on how they can return to compliance with AGOA’s requirements and would work with them to achieve that goal.

Ethiopia is "extremely disappointed" by Washington's announcement, its trade ministry said on Tuesday, calling for a reversal by January.

"These actions will reverse significant economic gains in our country and unfairly impact and harm women and children," the ministry said. "Ethiopia will continue to make every effort to correct any unintended or perceived wrongs."

'1 MILLION JOBS'

In his letter to Congress, Biden said Guinea and Mali had not made progress toward establishing rule of law and political pluralism, and Mali had failed to establish workers' rights and human rights.

Government spokespeople in the two West African countries

could not immediately be reached for comment. Both were suspended from the African Union after their militaries seized power and have been sanctioned by the Economic Community of West African States regional bloc.

The AGOA trade legislation provides sub-Saharan African nations with duty-free access to the United States if they meet certain eligibility requirements, such as eliminating barriers to U.S. trade and investment and making progress toward political pluralism.

Ethiopia is not a major exporting nation, but officials have said losing that trade access would take away 1 million jobs from the country of 109 million people.

Textile and apparel made up more than 90% of Ethiopian goods exported duty-free to the United States last year, which totaled about $237 million, according to U.S. Commerce Department data.

Sweden's H&M AB, which sources apparel from Ethiopia, said it was closely monitoring developments in the country but had no further comment.

U.S.-based The Children's Place (NASDAQ:PLCE) Inc and PVH (NYSE:PVH), which also work in Ethiopia, did not respond immediately to requests for comment.

William Davison, the International Crisis Group's senior analyst on Ethiopia, said the limited economic hit from cutting off duty-free trade access was "very unlikely to change (the government's) position on negotiating with Tigray's leaders.

"Instead, the far bigger threat to the federal government is the advance of the Tigray forces," Davison said.