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Posted by Esarhaddon from ( on Tuesday, July 15, 2003 at 1:34AM :

Imports Inundate Iraq under new U.S. Policy

by Robert Collier, San Francisco Chronicle
July 10th, 2003

Baghdad -- Along the streets of this city, sidewalks are crowded with huge boxes containing televisions, kitchen appliances, air conditioners and stereos.

Almost overnight, it seems, Baghdad has been turned into a vast emporium of imported goods.

It's part of a bold yet risky economic strategy by the U.S. occupation authorities, who have eliminated all import taxes for goods coming to Iraq at the same time they are pumping hundreds of millions of dollars into the economy through cash payments to government workers.

As a result, many Iraqis are getting their first taste of the consumer- oriented good life in many years, and they are snapping up imported goods right and left.

But the boom has come at a high price because it has accelerated the closure of hundreds of factories. After 12 years of economic crisis and strict import regulations under U.N. sanctions, Iraqi manufacturers cannot begin to compete with the price and quality of foreign goods. The closures, in turn, have thrown large numbers of people out of work, increasing social tensions at a time when public dissatisfaction with the U.S. occupation is growing to dangerous levels.


Nevertheless, some Iraqis welcome the change. Tarik Assad seemed the paragon of prosperity Tuesday as he lugged a new kitchen stove into the trunk of his car in Baghdad's Kerradeh district. The four-burner, Chinese-made model had cost only $90 -- a great bargain, he said.

Under Saddam Hussein, the same model cost about $150, more than a month's salary in Assad's job as an accountant for the national oil ministry. Now, the $90 is less than half his new monthly salary of $200.

"Thank God," he said. "My wife will be happy."

Like many of Iraq's 1 million state employees, Assad was recently given a two-month, lump-sum payment by the U.S. occupation authorities, who are trying to dampen public anger with a flood of cash. Salaries for lower and midlevel positions were increased -- in some cases dramatically -- while pay for top- level officials was cut.

With so much new cash in the economy, shopkeepers are busy trying to keep up with the buying frenzy.

"Most of my customers are state workers who recently were paid," said store owner Mohammed Basem. "For many people, this is the first time they've bought an appliance in many years."

Basem said his store is now grossing $7,000 to $12,000 per day. Under Hussein, it was bringing in only $2,000 to $7,000 per month.


The losers in the new economy, however, are complaining loudly. Textile plants and clothing factories have been devastated by the influx of cheap clothing, much of it made in China.

Other homegrown operations have also been damaged by the open-door import policy.

Under Hussein's regime, for example, imported beer and sodas were subject to 150 percent customs duties. After the war, local bottling plants were shut down and imported beverages -- now free of tariffs -- have taken over the market. Streets and highways throughout the nation are festooned with pyramids of brightly colored Saudi and Syrian soda cans, stacked up by vendors to advertise their wares.

"Without customs duties, the domestic producers cannot sell," said Khamis Al-Abed, head of a large consortium that includes one of Iraq's largest soft- drink distributors. "It's not a very good economic policy."

Even before the war, Iraq was in severe recession. Last year, the gross domestic product was $25 billion, according to U.S. estimates, one-fifth of its 1979 level. This year, it is expected to fall to about $15 billion.

The nation's farmers are also being jolted by the elimination of most agricultural subsidies, which were generous under Hussein.

Mohammed Juad Hussein, whose Al-Helli Chicken Co. has been dormant since March 30, used to be one of the nation's largest chicken butchers. Now, he says he simply can't compete against containers full of American Tyson chicken legs, which are shipped to the Middle East at bargain-basement prices because Americans prefer white meat to dark.

Hussein says domestic Iraqi chicken costs $1.30 per kilo (2.2 pounds) to produce, while it retails for only $1.25. Before the war, heavy government subsidies cut his costs, and most production was sold back to the government at a guaranteed profit that worked out to about 13 cents per kilo.

He has laid off all but 20 of the firm's 140 workers. The fate of the rest, he says, "is in the hands of Allah."


Iraq's new economy is largely the work of L. Paul Bremer, the U.S. administrator of Iraq, who has argued forcefully in favor of a free-market system, including rapid privatization of state-owned industries.

"We have succeeded in opening Iraq's borders and bringing modern free-trade policies here," he said last week. But he acknowledged that his policies are running into heavy opposition from Iraqis.

"I certainly believe that privatization is the way to go for Iraq, to put its obsolete state-run Stalinist industry system back into productive use," he said. "But I recognize that it's a sensitive subject, and I don't see any consensus among the Iraqis on it. So it will be a subject for the (soon-to-be- named) Iraqi governing council to discuss."

The debate may be repeated throughout the Middle East. In early May, President Bush proposed a U.S.-Middle East free trade area to cover the region's 22 nations. He called the proposal "an expanding circle of opportunity, to provide hope for the people who live in the region."

Many Iraqis say the U.S. economic shakeup in Iraq is ill-advised. "We need a free trade system, but only within an institutional basis, as part of a comprehensive package," said Hamid Al-Jumaily, a professor at Al-Nahrein University in Baghdad and one of the country's leading economists.

"At present, there is no economic policy as such, either by (private) business enterprise or by government. Just opening the borders and eliminating tariffs isn't free trade."

-- Esarhaddon
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