In Somaliland and Ethiopia’s Somali Regional State, small-scale informal trading far exceeds formal trade. However, most recent writing on trade in this region has disproportionately focused on formal trade thus neglecting a key area of economic activity.

In contrast, this report focuses on the Gaashamo corridor—a series of small border crossings between Ethiopia and Somaliland—to analyze the everyday governance of four small trade routes. Their comparison provides valuable insights into cross-border trading and taxation, which often have little do with federal and regional policies and laws.

• In Somaliland and Ethiopia’s Somali Regional State, small-scale informal trading far exceeds formal trade. However, most recent writing on trade in this region, which includes the Berbera trade and transport corridor, has disproportionately focused on formal trade thus, neglecting a key area of economic activity.

• As a corrective, this paper focuses on the Gaashamo corridor—a series of small border crossings between Ethiopia and Somaliland north of Gaashamo town—to analyze the everyday governance of four small trade routes. Their comparison provides valuable insights into cross-border trading and taxation, which often have little do with federal and regional policies and laws.

• Trading along these micro-routes defies simplistic dichotomies of ‘formal’ versus ‘informal’. Instead, there is considerable variation in the way in which government actors manage and tax cross-border trade, even from one border crossing to the other, making ‘irregular’ trading a regular occurrence.

• In principle, trade is regulated and managed by the federal government. But many of its legal requirements are out of tune with the borderland’s socio-economic realities and thus incentivize regional and local administrations, as well as traders, to bend or ignore the law.

• Regional state trade policies and practices are particularly problematic. For example, the Somali Regional State’s Special or Liyu police and district authorities collect taxes in some corridors and along some micro-routes, but not in others.

• The Liyu police effectively manages borders and trade even though this was not its original mandate. Trade policy formulated in Addis Ababa thus has very little to do with its implementation at local level. State actors, in particular the Liyu police, engage in practices that defy both federal and regional laws and policies.

• Zooming in on micro trading routes in the Gaashamo area of Somali Regional State,
the paper describes three modes of governing small-scale informal cross-border trading: an ‘ungoverned’ route; a route governed by the Liyu or special police; and a ‘co-governed’ route where traditional authorities, the Liyu police, and revenue agents regulate commodity flows, taxation, and the mobility of persons across the Ethiopia-Somaliland border.

• Cross-border trading between Ethiopia’s Somali Regional State and Somaliland is thus regularly irregular, pointing to the need to reform trade and customs policy and practices at federal, regional and local levels.