Ethiopia-china Bilateral Trade Relations: Economic Capacity, Balance of Trade

China’s trade with Ethiopia currently at 5.4 billion USD annually is expected to rise to US$6 billion by 2018. This essay puts forward the argument that while trade ties as one important channel of bilateral relations that China has embarked with the outside world and particularly with Ethiopia is uneven and lop-sided. This is true of the Ethiopian context as well particularly when we look at the economic capacity, balance of trade and at the two countries relations with international trade regimes. While China is a full member of WTO for over a decade Ethiopia, on the other hand, has been aspiring to become a member for some time now and hence one of the important aspects of Ethio-China trade relations is the heavy reliance on bilateral/international trade regimes. Therefore, this essay is aimed at unraveling the dynamics in Sino-Ethiopia trade relations with emphasis on the economic capacity of the two countries, the balance of trade and explore whether Ethiopia’s attempts to join WTO would lead to a more predictable trade relation between the two countries. In this essay, I would largely rely on the analysis of relevant archival resources and literature directly relating to the themes in this paper.

It is not exactly known when China and Ethiopia first made direct or indirect contact in ancient times. The first contact between Ethiopia and China may have been begun around 1000 A.D when China started to import rhinoceros horn from Ethiopia during the Axum Dynasty. However, the bilateral trade relations between China and Ethiopia was started in 1956 with limited volume, but after 2005-2006, China has become Ethiopia's largest trading partner and started to take first and at least second place among Ethiopia’s trading partners as import and export origin Following the change of political leadership of Ethiopian People Revolutionary Democratic Front in 1991, the economic policy scene in Ethiopia has undergone fundamental changes. Besides the change in the trade policy, in turn, created the favorable ground for nations around the world to see Ethiopia as a major trade partner. As a result, Ethiopia is growing trade bilateral relations with the People’s Republic of China as one of the major. Currently, Ethiopia has a very good relation with China. Recently, China has stepped into the area of foreign investment, and Ethiopia has to do all which can to take this fresh opportunity to promote investment and trade in the country. However, some scholars see China’s economic growth as a positive development model for the third world while others look more critically at China’s behavior on the continent and see its parallels to the neo-colonial past. Also, currently the government of Ethiopia sees the Ethio-China relations as it helps to realize the country’s development.

A cursory glance at the manner in which China-Ethiopia political and economic relations has gained pace over the past two decades gives an impression that the momentum will only continue. Today there are many who argue that owing to the ideological/political compatibility between the incumbent governments in power that has for both domestic and international reasons pushed the various economic opportunities and challenges that the relations brought about to the backburner. Domestically, the tremendous economic development that China has been able to achieve over a short period lifting it to the level of second largest economic power has lent itself a model country for other African countries, notably Ethiopia. And externally China’s five principles of peaceful co-existence or Panchsheel1 have come as a blessing in disguise for Ethiopia to fulfill its political and economic aspirations without hindrance as compared to that of its Western partners who have been for long raking up issues that are considered detrimental to its political and economic interests.

However, the major argument of this paper is that challenges to bilateral trade relations have emanated in terms of the actual economic capacities of the two countries, the balance of trade, and the countries relations with international trade regimes. This is simply clear when one takes the trade as an element of economic relations in African countries as a comparison with China, which is already a member of the World Trade Organization (WTO). On the other hand, Ethiopia is only an aspirant for membership in WTO and hence stands to non-reciprocal trade relationships thereby leveraging bilateral agreements and understandings than subscribing to rules and trade regimes of international standing. This non-subscription to rules and trade regimes has contributed to the current imbalance in trade between the two countries. This article is an attempt to bring out the cons and pros of China – Ethiopia bilateral trade ties with reference to the economic capacity of the two countries, the challenges of trade balance, and applicable trade regimes/rules and regulations that could not only have potentially broader implications on relationships but also help to explain the nature of the relationships. By focusing on the dynamic nature of trade relations between Ethiopia and China, this study aims to contribute to the debate on the extent to which the on-going trade relations will be predictable enough for mutual benefits of the two countries, within the broader context of China - Africa relations.

It has been noted that the common interests of African countries warm relations with China is “constantly” expanding, and the future of their economic and trade cooperation is bright. China-Africa economic exchanges will continue to expand within bilateral or multilateral frameworks, broaden the scope of cooperation and explore new methods of cooperation.

The existence of favorable Africa wide framework means that China-Ethio trade has been largely perceived as a showcase of such relations with African countries. This is also important for the ever-growing trade relations between the two countries and Ethiopia seem to be enjoying preferential trade relations. However, as noted above, the trade relations face challenges in terms of the existing differences in the capacity of trade that Ethiopia, in particular, has to offer to contribute to an imbalance in trade and thereby questioning issues of predictability and transparency. The growing trade relation of China’s present and potential impact on Ethiopia is both far-reaching and complex. However, such a two-way relationship can only be fruitful if both parties respect one another and are ready to listen and learn from each other’s experience. The relationship also needs to be underpinned by an understanding of how the actions of one are likely to affect the life of the other. besides, it is important to achieve greater export diversification by identifying niche markets for Ethiopian manufacturing products in China. besides, China should prioritize the development challenges of Ethiopia such as trade imbalances and other problems through enhancing local industries and experience sharing through transforming skill, knowledge, and technology.

In other words, unless and until their bilateral trade relations are on the predictable and transparent path it would be difficult to continue to have such beneficial trade relations. In this situation, Ethiopia’s non-membership in WTO would only help continue their relations but once Ethiopia is accepted to be a member then things would not remain the same. The difference in the economic capacity of the two countries is more pronounced in the balance of trade of the country’s economies. The fact that China’s trade balance is overwhelmingly positive and that of Ethiopia’s is in the negatives is emblematic of explaining the differing capacity of the two countries. This in a way contributes to the perception that the situation is in favor of China. In conclusion, the dynamics of China- Ethiopia trade relations could better be understood when assessed on the basis of the economic capacity, trade balance and the impact of international trade regimes. In other words, China-Ethio trade relations do not take place in isolation and these needs to be understood in the context of wider dynamics. It is found to be important to reflect on the significance of themes in international trade in making sense of China-Ethiopia trade relations beyond popular perceptions.