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By Edmund L. Andrews
The New York Times
http://www.nytimes.com
The International Herald Tribune
http://www.iht.com/
Tuesday June 3, 2003

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BAGHDAD Shakir Thiab and his Bayltha candy factory survived the U.S. military invasion without a scratch. But the invasion that followed has all but shut him down.

When the war ended in early April, a 2-pound (1-kilogram) bag of his Fenom line of fruit-flavored hard candies sold for 3,000 dinars, or about $1.50. Now, faced with a flood of duty-free imports from Iran, he can only charge 1,000 dinars.

Cutthroat pricing is not the only problem. Opening a pack of his Garnaata-brand cream-filled wafers, Thiab noted gloomily that his wafers had congealed into an unappetizing mess - a result, he said, of the inferior flour available to him. By contrast, imported Tasteful Wafers from Iran were fresh and crisp.

"We dropped our prices to keep selling, but we cannot do business," said Thiab, who shut down most of his aging machinery three weeks ago. "Iraqis only want to buy foreign products now. They don't trust anything made in Iraq."

Thiab's problems are a foretaste of a much broader economic shock in Iraq. After 12 years of trade sanctions imposed by the United Nations, and decades of economic mismanagement under Saddam Hussein, Iraq's cloistered industry suddenly faces the full fury of globalization and international competition.

In the seven weeks since U.S. forces seized Baghdad, Iraq has been transformed from one of the world's most isolated economies into a huge new free-trade zone.

Open-air markets and stores here are being flooded with television sets from South Korea, refrigerators from Iran and China, toasters from Germany, and packaged food from almost everywhere.

For Iraqis with money to spend, the free-for-all has brought a dazzling range of choices. Satellite phones and portable kerosene stoves, badly needed to cope with the absence of normal phones and the lack of cooking gas, are so plentiful that prices have declined.

But the downside is also taking hold. Iraqi manufacturers, which employed more than one-tenth of all workers before the war, are almost powerless to match the new competition. Their equipment is badly outdated. Their sense of marketing and promotion has atrophied. In many cases, their image among Iraqi consumers is abysmal.

The free-market shocks are even bigger for Iraq's state-owned industrial companies, which produce everything from packaged foods to electrical equipment and employ more than 100,000 people.

Adding to the stress for manufacturers, the Iraqi dinar has unexpectedly soared in value since the end of the war. The dollar has slumped to 1,300 dinars from 3,000 dinars, and this has pushed down the cost of imports just as customs duties were disappearing.

All this poses a challenge for U.S. and British officials. U.S. officials plan to announce a six-month tariff holiday on imports soon, and they envision a free-trade agreement between Iraq and the United States one day.

The New York Times

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Direct Link:
--http://www.iht.com/cgi-bin/generic.cgi?template=articleprint.tmplh&ArticleId=98340

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