Frozen In Midstream

By Barbara Rudolph

At NEI Parsons, a subsidiary of Northern Engineering Industries in Newcastle-upon-Tyne, England, employees have abandoned work on what should have been one of their most lucrative projects in recent years, a $150 million contract to build four turbine generators for a power station at Al Shemal, 240 miles north of Baghdad. Playing its small part in the worldwide sanctions against Iraq, the firm has announced layoffs of 650 workers. Near Beasley, Texas, Jack Wendt, who farms 1,500 acres of rice and grain, calculates that he will earn $72,000 less than in 1989 because of the sudden disappearance of the U.S. rice industry's best customer, Iraq. In Paris, Airbus Industrie has put on hold a deal to sell five A310 wide-body jets to Iraqi Airways at about $70 million a plane.

The freeze on trade with Iraq and Kuwait is buffeting a lot of people, from U.S. manufacturers of oil-field equipment to Irish meat producers to Italian shipbuilders. If U.N. sanctions produced a cutoff in trade with Iraq, they also led Iraq to suspend payment on outstanding debts. The result is dislocation and even hardship among Iraq's erstwhile commercial partners.

Among the hardest hit are American rice growers. Iraq bought about $143 million worth of the staple from the U.S. in fiscal 1989 -- or 25% of the U.S. export total. The embargo came as painful news for producers, since world prices for rice had fallen 28% during the previous year. Nor are rice growers the only farmers feeling the pinch. Before the invasion, Baghdad was buying $350 million worth of other U.S. grains annually, including wheat, corn, barley and soybeans.

Moscow faces losses as well. Professor Alexander Arbatov of the U.S.S.R. Academy of Sciences estimates that the Soviet Union might be forfeiting a potential gain of as much as $1 billion by cutting off sales of arms and agricultural products to Iraq. Several East European countries with crumbling economies will be burdened by the chunks of uncollectible Iraqi debt they hold. Worst off are Bulgaria, which carries $1.2 billion, and Romania, which is owed $1.7 billion.

Japanese and German banks and trading firms are saddled with more than their share of Iraqi debt. Japanese trading companies hold about $5 billion in unpaid Iraqi bills, German banks about $2 billion. The embargo also leaves 40 German companies stuck with $2 billion in debt on business deals that have been partly completed but not paid for. Some of those losses will be covered by Hermes Kreditversicherung AG, the German state export-insurance program, but as much as $1.2 billion in trade with Iraq and Kuwait is not insured. Large diversified conglomerates like Daimler-Benz, Mannesmann and Ferrostaal can absorb such shortfalls, but smaller firms with proportionately larger exposure are talking about hardship and calling for a government bailout.

For Britain, exports to Baghdad might have matched last year's $732 million, which were supported by a $628 million government-guaranteed line of credit announced by the Department of Trade and Industry in November 1988. At the time, DTI Minister Tony Newton said the government was nearly doubling the export credit line because of the ministry's confidence in the "long-term strength of the Iraqi economy."

Turkey finds itself in a particularly painful bind. Exporters had expected to sell Baghdad $600 million worth of goods, mainly iron, steel and food products. Since the U.S. and most European countries impose strict quotas on some of these imports and the markets for others are saturated, Ankara estimates that 75% of the products destined for Iraq will effectively be rendered worthless: no other foreign importer will be able to buy them.

Commercial connections with Iraq have been a source of embarrassment to some companies in Italy and the U.S., among others. Baghdad owes Italian banks < about $2.2 billion, mostly because of unauthorized loans made by the Banca Nazionale del Lavoro branch in Atlanta. That scandal, which is still under investigation in the U.S., led to the resignation of B.N.L. directors and the dismissal of nearly everyone connected with the Atlanta branch. In addition, Iraq owes Italy more than $1 billion for warships that were built but never delivered. In a footnote to the gulf crisis, about 90 Iraqi sailors are living on board two of the corvettes at the naval port of La Spezia. Every day they raise the Iraqi flag, rev up the engines and swivel their gun turrets.

Lost trade with Kuwait affects mostly oil-related firms. Of the $975 million in goods and services that Kuwait imported from the U.S. last year, $933 million covered sales of petroleum-testing equipment.

The fall of Kuwait has had a direct effect on French perfume manufacturers, who last year exported more than $20 million of their luxury staples to the emirate. Some couture designers, including Nina Ricci, have also lost business, since some of their best customers were Kuwaitis.

Beyond causing direct losses in trade and commerce, the gulf crisis has sparked a general reluctance to invest in a region that has been an important trading partner for industrialized economies, contributing $3.3 billion to Germany's $81 billion trade surplus for 1989. For the moment, most capital projects have been delayed. Saudi Arabia, for instance, planned to construct 400 new industrial plants at a total cost of $40 billion in the next five years. Until the crisis is resolved, it is safe to assume that those projects will remain where they are today: in limbo.

With reporting by Anne Constable/London and William McWhirter/Chicago, with other bureaus