PART I

by Alemseged Tesfai

PART II PART III

Two premises or assumptions have governed Ethio-Eritrean relations of the past sixty years. First is the notion carved into the minds of generations of Ethiopians by the Haileselassie regime that Eritrea is, by nature and logic, part of Ethiopia. The well known arguments of a common history, religion and culture is invoked here and Eritrea is defined as Ethiopia's natural "outlet to the sea".

The second premise, which is linked to and complements the first, regards Eritrea as economically weak and unviable, such that its very survival totally depends on Ethiopian resources. This line of thinking further depicts Eritrea as an ethnically, linguistically and regionally divided "Italian creation without the makings of a state"....

These two Ethiopian assumptions gained international currency in the 1940's, when leading Powers like the U.S. and Britain adopted them mainly to satisfy their own strategic needs and led the fledgling UN into passing a resolution federating Eritrea to Ethiopia "under the sovereignty of the Ethiopian crown".

The people of Eritrea were not consulted in this decision over their fate and, consequently, they spent the next forty years, thirty of these in armed struggle, fighting for independence. When in 1991 the EPLF led a united Eritrean people to their hard-earned freedom from Ethiopian rule, Ethiopia's fallacious premise that Eritrea forms an "inseparable part and parcel of Ethiopia" was finally defeated.

The economic argument too had, of course, no basis in Eritrean reality. As an Italian colony and a British occupied territory, Eritrea had a developed industrial and infrastructural base. These were systematically dismantled by successive Ethiopian administrations, such that, in the 1950-1960's, Eritrea became a big source of skilled manpower mainly to Ethiopia, but also to Saudi Arabia, Yemen and Sudan. Most of the Eritreans being expelled from Ethiopia to-day are the migrants of those years. To-day, Eritrea's natural resource, tourism and services potentials are showing signs of great future and promise.

In 1991, when the TPLF assumed power in Ethiopia, there was every reason to believe that the above mentioned Ethiopian fallacious assumptions would come to a final rest. Indeed, all the pronouncements of the TPLF leadership at the time left no room for doubt or apprehension in Eritrean minds that they were genuine. It appears, however, that there was more to these than met the eye.

In an interview he gave to the American writer, Paul Henze, in March 31 and April 1, 1990, Meles Zenawi, then head of the TPLF, expressed his feelings about post-independence Eritrea. He told him, first, that he did not expect Eritrean unity to hold, once the Derg was expelled from Eritrea. The main reason he gave for this was that Eritrea was a religiously divided nation and that he expected to see internal conflict once the enemy had gone. Second, he also expressed his unreserved preference to see, not an independent Eritrea, but one linked to Ethiopia in a federal arrangement. In explaining this, he told Paul Henze,

The above comments, expressed slightly over a year before Eritrean independence are self-explanatory. Its public declarations notwithstanding, it appears from Meles's thinking that the TPLF had, itself, never been free from the old fallacies of Ethiopian ruling classes. One exception is that, the TPLF wanted Eritrea, not for Ethiopia as a whole, but, again according to Meles's own admission, to enhance the interests of Tigrai.

Since the start of the border conflict between Eritrea and Ethiopia, this hitherto hidden agenda has been consistently coming to the fore in Tigrayan propaganda literature and the utterances of the TPLF leadership. In fact, according to TPLF propaganda, the issue is no longer their allegations that "Eritrea occupied by force, Ethiopian territory at Badme". It is, rather, Eritrea's internal political and economic problems, which presumably, is to be "corrected" by the TPLF's declared war on Eritrea. In short the re-occupation of Eritrea or parts thereof is the real reason for the present conflict.

This paper will try to set the record straight by disproving the fallacy of "the economic argument" and proving, instead, that the border dispute is the direct result of the TPLF's expansionist policies and disposition. The first part of this paper deals with the most relevant aspects of the post-1991 cooperation agreements between Eritrea and Ethiopia. The second part will narrate, in summary form, the events that led to the border dispute at Badme. These are separate papers, but should be read together so that the real cause of the war may be firmly established.

1. The Agreement of Friendship and Cooperation between the Transitional Government of Ethiopia (TGE) and the State of Eritrea signed in July 1993 is precisely a testimony to the spirit of friendship and cooperation that characterized, at the time, the relationship between the two states, governments and peoples. It foresaw activities of "mutual advantage" in practically every field with the ultimate aim of "gradual evolution of the two economies and societies into a higher level of integration in accordance with ".....the commitment of both countries to bring about regional economic integration and political cooperation" (Art.1).

   The Agreement further called on the gradual elimination of all trade barriers between the two countries and the harmonization of customs policies, as well as the use by Ethiopia of Assab and Massawa as free ports (Art 4). The free movement of people and the harmonization of immigration laws was also agreed upon (Art.5). Cooperation in the financial and monetary fields (Art. 9); cooperation and consultations in "realizing common objectives" in matters of foreign policy (Art 10); cooperation at the national and regional levels in border areas (Art. 12); ....were all important parts of the Agreement.

2. Subsequent to this, several agreements were signed by respective joint ministerial committees set up in accordance with the July Agreement. One of these dealt with the harmonization of economic policies, signed in September 1993. This is where it was agreed that the Birr continue as a common currency until Eritrea issues its own money (Art. 1). Here too, the agreements were wide-ranging and quite forward-looking. The harmonization of "exchange rate policies..... with the aim of establishing uniform exchange rates" (Art. 1.1.); harmonization of interest rate structures (Art. 1.2.); the creation of common inflation-control mechanisms (1.3); synchronization of policies related to foreign exchange (1.4).... were all laid down.

   In the field of trade (Art.3), the free movement of goods and services for local consumption in both countries was agreed upon, with the exception "of those goods in short supply whose movement depends on their supply availability and related trade policies...." (Art. 3.1). Goods imported from third countries were to move freely (Art. 3.2), but there was to be no re-exportation of goods and services originating from one contracting party to a third country. (Art. 3.3).

   In the area of investment, besides the call for joint-investments, there was an agreement, in principle, that national investors of both countries have the same and equal treatment in both countries. (Art.4). Another Protocol Agreement on Cooperation in the Field of Planning and Economic Development was signed on 27 September 1993, where the two parties agreed to "endeavour to coordinate planning in social policies and the usage of human, material and financial resources (Art. 2,3); the planning of strategic industries, railway, roads, ports, air transport, major financial institutions....", including the exchange of "social and economic statistics to coordinate their planning and development endeavours were all important. (Arts. 4,5).

   The Protocol Agreement on the Free Movement of people and Establishment of Residence of 23 September 1993 is another important document. Here, it was agreed that visas would not be required for nationals of both countries to enter or leave Eritrea and Ethiopia. A valid passport or ID card was all that was required (Art.1). Unlimited residence to both nationals was granted without the requirement of work permits (Art. 2). Each country was to "allow citizens of the other to engage in commercial, business and other similar gainful activities in its territory. In furtherance of this objective, each contracting party undertakes to grant no less favourable treatment than that accorded to its own nationals" (Art.3). The only restriction appears in Article 4 where it was provided that "each country reserves the right of refusal to enter or remain in its territory to (sic) any citizen of the other country where it considers the entry or presence of such citizen undesirable."

Other agreements covered a wide-range of fields of cooperation, but for the purposes of this presentation, the above will suffice.

The argument is often heard that the agreements favoured Eritrea more than they did Ethiopia. Let us look at some facts:

1. Ethiopia enjoyed full and unrestricted use of the port of Assab. Assab has been, by agreement and practice, its free port. The Ethiopian Shipping Lines handled its own cargo, paying the Eritrean authorities in Birr, for consignment fees it received in foreign currency. At the same time, the agreements allowed Ethiopia the use of the port of Massawa for its northern regions at negligible fees and payments - a transit charge of only 1.5%. In later years, the Ethiopians were asking that this charge be reduced further. In both of these port cities, but especially in Assab, the rate of employment for Ethiopians was high. In Assab, Ethiopia was privileged to open four schools operating under its own curriculum.

2. The Agreement on air services allowed Ethiopian Airlines to take Eritrea's quota of IATA flight space and privileges - "the fifth freedom rights" as they are called. Eritrea was a major region for the Airline, and Eritreans were some of its most frequent and faithful passengers.

3. Surface or land transport also worked heavily in favour of Ethiopia, as no embarkation or other charges were levied on Ethiopian trucks running to and from Massawa and Assab. One ought to keep in mind that Eritrea inherited totally dilapidated roads from years of disrepair and destruction by the Derg's military campaigns. The task of repairing them was entirely Eritrea's own responsibility.

4. In these three instances, Eritrea's benefits in financial terms were the various agreed revenues accruing to it from port activities and the fringe benefits thereof. This cannot compare with the privileges of the freedom of access to the ports that Ethiopia was enjoying. Eritrea actually saw the arrangement more as a gesture of friendship and cooperation and as the grounds on which the projected move towards economic integration, currency union...etc., was to proceed. Maintenance of the peace and security of the area was also of prime consideration in this matter.

5. On 3-4 April, 1995, the Joint High Ministerial Commission led by Minister Mahmoud Sherifo of Eritrea and the then Prime Minister Tamrat Layne of Ethiopia met in Asmara to evaluate the 1993 agreements. The Commission "expressed its profound satisfaction on the progress made." Indeed, in the areas of education, culture, air-line services, telecommunications..... etc., the agreements were assessed to have worked well.

The Commission, however, identified two problem areas - the issue of citizenship and the commodity or trade sector.

The first case, raised in the joint Political Committee, regarded "a few minor problems in the areas of security and justice. Here, the Commission noted,

"In the area of security, the Ethiopian side presented that the free movement of people has been hampered due to unclarity of ID cards. It also raised the issue that a significant number of Eritreans who have already taken Eritrean Nationality are still carrying Ethiopian passport and are requesting for its renewal."

The point was actually the result of the divergent policies of the two parties regarding the issue of nationality. Eritrea recognized the dual citizenship of all its citizens living everywhere else in the world. Eritrea automatically accepts as its citizens, those of Eritrean parentage on both or either side. Nationals of other countries may also be granted Eritrean citizenship by law.

Ethiopia does not allow dual citizenship to its nationals; or so it is claimed, for it is hard to believe that all the Ethiopian exiles who have adopted various citizenships are no longer Ethiopian. But, with respect to Eritreans also holding Ethiopian citizenship, the Ethiopian Government had been wavering. On the one hand, the present Ethiopian Government saw them as strong allies in its own struggle against its opposition, but on the other, and for reasons that are becoming clear only after the conflict, it wanted to curb their activities.

Be that as it may, the Ethiopian Government never took any legal steps to put the matter to rest by either asking its citizens of Eritrean origin to drop their Eritrean citizenship and become only Ethiopian, or by allowing them to choose which citizenship they wanted to adopt. Since this was not done, Ethiopians of Eritrean origin continued to consider themselves also as Ethiopian citizens and the Ethiopian Government continued to accept them as such.

This situation did raise some problems, especially in the issuance of licenses in both countries. To put it simply, the Ethiopian side felt that Eritreans in Ethiopia were taking a fairer advantage of the free movement, residence and business agreements and demanded reciprocity in Eritrea. Eritrea insisted that those Eritreans were mostly holders of Ethiopian citizenship. Thousands of Eritreans of Ethiopian origin were enjoying the same rights as Eritreans in Eritrea. The latter had, and still has, no problem recognizing them as Eritreans. The reciprocity, therefore, was already there.

The problem arose when it came to the issuance of new licenses to citizens of one country only wanting to do business in the other. According to the Eritrean side, equality and reciprocity of treatment was needed here.

A great percentage of the tens of thousands of Eritreans who have been expelled from Ethiopia to date, fall under the first category, i.e., they are Ethiopians of Eritrean origin. No similar measure has been taken on any Ethiopian living in Eritrea. Eritreans of Ethiopian origin have full Eritrean citizenship rights and do not even come into question.

This is the sector that showed some signs of incompatibility right from the outset. The agreement of 23-27 September provided for the following:-

• free movement of goods and services between the two countries except those that were short in supply;
• free re-export of goods imported from third countries in accordance with the rules and regulations of the exporting country;
• no re-export to a third party of goods exchanged as export between the two countries;
• introduction of trade and customs procedures to both countries to facilitate trade; and
• transaction between the two countries to be settled in Birr.

Here, the Eritrean side found the restriction on "goods in short supply", which was an Ethiopian inclusion, difficult to understand and work with, as any product could be so declared at any time, thus hampering free trade movements. The ban on the re-export of the other country's products was also noted as overly restrictive by Eritrean negotiators, as it left "traders at the mercy of the staff of the customs administration." Re-exporting products is a common practice of international trade and Ethiopia was the beneficiary of Eritrean re-exports to Ethiopia. Nevertheless, the Eritreans went along with the restriction.

Subsequent agreements in May and November 1994 tried to work around these problems. A memorandum of understanding signed by the two sides on 7 October 1994, indicates that the Ethiopian delegation expressed appreciation for the following measures taken by the Eritrean Government:-

1. " Goods and commodities originating from Ethiopia will not be subjected to any customs tariff payment,

    

2. Ethiopian traders who have valid Ethiopian trade licenses will personally, without going through Eritrean traders, purchase goods and commodities from Eritrea, and

3. One point five percent (1.5%) transit charge (sic) levied on goods and commodities coming through the port of Massawa destined for Ethiopia.

4. There will be no hindrance to border trade activities carried out between our two countries."

   In this agreement, it was further stipulated that no additional intermediate and local payments were to be imposed on goods and services traded between the two countries. The setting up of a joint customs committee to oversee this was also agreed upon. The request by the Eritrean delegation for exemption form indirect (sales, excise....) taxes on all locally produced goods and services traded between the two parties was referred by the Ethiopian side for further study. But, both countries agreed that the free movement of goods not be impeded or distracted by the "short supply" limitation.

In spite of all these seemingly genuine attempts at moving towards higher levels of trade cooperation, however, the problems persisted. In its meeting of 3-4 April, 1995, the Joint High Ministerial Commission headed by Eritrean Minister Mahmoud Sherifo and Prime Minister Tamrat Layne of Ethiopia also raised the trade issue. The Eritrean side complained that contrary to the letter and spirit of the free trade agreement, Eritrean products were being made to pay indirect taxes and intermediate payments of various descriptions in every Ethiopian region or Kelil they entered. To this, the Ethiopian response was as follows:-

"The Ethiopian delegation reiterated its position that Indirect Tax levied in Ethiopia is non-discriminatory and thus cannot be lifted.

"It further stated that indirect tax are not considered to be a hindrance to free trade and services in FTA (Free Trade Area). It is an internal tax. Removing or changing these taxes will have serious implications for Ethiopia. It should be understood that changing domestic tax policy on grounds of trade relations will create problems for Ethiopia.

" The Eritrean side reasserted that indirect taxes are trade barriers and must be lifted. It further argued that indirect taxes levied under a policy of import substitution as a protective fiscal measure is a trade barrier and impressed upon the Ethiopian delegation to reconsider its position".

On the issue of intermediate payments at the Kelil level, the Ethiopian delegation again insisted that the payments would be adjusted or lifted only if they were discriminatory.

These two problems, which eventually developed into major stumbling blocks standing on the way of the attainment of the original vision, had their roots in the divergent directions in economic policy and strategy that the two sides were moving. Eritrea had adopted an outward looking, export and free market-oriented strategy. It saw Ethiopia not as a competitor, but as a partner and ally in the global market. The Ethiopian strategy, as officially expounded, was based on the development of its agricultural potential and the building up of a chiefly agriculture-related industry. Consequently, it was protective of its local products, which it saw as substituting various imports, including those from Eritrea. In other words, for Ethiopian policy-makers, Eritrea was a competitor in their own local markets and not, as the agreements seemed to originally indicate, an ally and a partner.

This difference in policy and practice had the net effect that Ethiopian goods were entering Eritrea with full freedom, whereas Eritrean products were being made to pay both indirect taxes and the embarkation charges and development fees imposed especially by the Tigrai region. This put the competitiveness of Eritrean goods in Ethiopian markets at a disadvantage. The problem does not stop here. Eritrean products were mainly industrial in nature, whose materials and chemicals were paid for from its own foreign currency reserves. Its re-exports to Ethiopia too were always similarly paid for from Eritrean reserves. That all these were exchanged for Birr in Ethiopia was an added disadvantage to Eritrean trade.

Total value of imports from Ethiopia to Eritrea for the years 1995, 1996 and 1997 stood at 146.8, 261.8 and 274.6 million Birr, respectively. Total value of Eritrean exports to Ethiopia for the same years show 259.7, 273.4, 218.2 million Birr. Total value of re-exports from Eritrea to Ethiopia, again for the same years, stood at 94.57, 69.0 and 19.8 million Birr, respectively.

In view of the fact that there was Eritrean foreign currency in almost every item exported or re-exported to Ethiopia, the favourable balance of trade apparent in the 1995 and 1996 figures is deceptive. In any case, these had dropped from 100 million to 10 million in just one year, 1995-1996. We should also note that the value of imports from Ethiopia exceeded those of Eritrean exports by about 60 million Birr in 1997. At the same time, the value of re-exports fell to an all-time low of 19.8 million Birr, a drop of 50 million Birr from that of the preceding year. This was, of course, not accidental as it resulted from Ethiopia's increasingly protectionist measures and from the stringent controls and harassment of Eritrean traders at the various check-points in Tigrai.

The fact is that, by 1995-1996, the Eritrean side was already realizing that progress in the trade sector was not likely to proceed as intended. Eritreans were being delayed at check-points, goods classified as "export items" were barred form entering Eritrea..... and so Eritrea was, by 1996, already de-escalating its traditional intensive trade practices with Ethiopia and expanding its market alternatives. Hence, another reason for its unfavourable trade balance in 1997.

Considering again the fact that most Eritrean exports and all of its re-exports to Ethiopia involved payments in foreign currency being exchanged for the Birr, Ethiopia's advantages in the trade sector were significant.

Add to this the use of free port and transport services, the employment of thousands of Ethiopians throughout the country, but especially in Assab and Massawa, and the non-payment by Ethiopian traders of Eritrean indirect taxes and intermediate payments, and the picture will be clearer.