Iraq: Will Market Slip Away?

One of the biggest potential growth markets in the Mideast may be slipping away from U.S. business through a combination of factors on both sides.

Iraq is the U.S.'s fifth largest Arab export market. The Iraqis bought $913 million worth of American goods in 1981—25 percent more than in 1980, which in turn was 65 percent up on 1979. This improvement has occurred despite the absence of formal diplomatic relations between Washington and Baghdad and bitter Iraqi criticism of U.S. Middle East policies.

Over the past two years, the Iraqis have quietly encouraged American exporters and contractors to pursue opportunities in a market where the U.S. still has only about a 7 percent sales share, behind Japan, West Germany, France and Italy and just ahead of Great Britain.

U.S. firms were invited for the first time in 1981 to exhibit at the annual Baghdad Trade Fair, and those who did participate reported good results. This year, U.S. firms will be allowed to show their wares in a single designated area at the Fair, although it will still not be a national pavilion as such.

For its part, according to State Department sources, the U.S. has encouraged the development of commercial ties with Iraq, and the Commerce Department has posted an experienced businessman, Hampton Brown, to Baghdad as "commercial counsellor" to aid the process.

The Commerce Department sponsored a delegation of U.S. truck-body manufacturers on a visit to Iraq earlier this year, and a U.S.-Arab Chamber of Commerce-led mission of 23 construction company executives left for Baghdad on May 20. Two years ago, the Iraqis cancelled plans to receive an officially- sponsored U.S. trade mission when its members were already in Jordan en route; since then, Baghdad has shown a much greater willingness to grant visas to U.S. business visitors and, in some cases, to get around provisions of the Arab boycott of Israel in order to facilitate U.S. business.

For its part, the Reagan administration on February 26 removed Iraq from the list of countries it accuses of supporting international "terrorism", thus clearing the way for sales of a wide range of big-ticket, non-military U.S, technological goods, including civil aircraft, to the Iraqis.

The key factors which may reverse these trends are the Iraq-Iran war and an election-year resistance in the U.S. Congress to the notion of improving relations with Baghdad.

The quest for better relations is one of the principal reasons the Reagan administration has retained strictly neutral in the Gulf war, although its ally Israel, which counts Iraq among its worst enemies, has been supplying the Iranians with war material.

The war has caused Iraq to curtail spending on non-essential imports and to shelve some development plans, creating a down-turn in business for foreign suppliers and contractors. Western businessmen, meanwhile, are hedging their bets until the outcome of the war becomes clearer; if Iraq loses and a new regime replaces President Saddam Hussein, there could be a marked shift away from closer ties with the West.

The House Foreign Affairs Committee, in reporting out the administration's foreign aid authorization bill for fiscal 1983 on May 13, attached an amendment extending until at least the end of this year the export controls on Iraq which the administration ordered lifted in February. At the committee hearings, the State Department argued that such a move could have a chilling effect on U.S. business relationships throughout the Mideast.

The new fiscal year begins on October 1, but last year Congress did not finally approve a foreign aid bill until after Christmas. If the process drags on similarly this year-beyond the November Congressional elections-the anti-Iraq amendment may be quietly dropped, having served its purpose as a "pro-Israel" gesture.

If not, U.S. firms can expect to see something they haven't experienced for years-the toughest possible interpretation by the Iraqis of boycott provisions, a rough time in negotiating contract terms with them and possibly the virtual freezing of American business out of the Iraqi market.