February 01, 2006

The Sudden Motorization of Iraq: an Update

For a while, used cars were able to move over the borders into Iraq in an almost unrestricted fashion. One simply registered the vehicle (if at all) once it got to Baghdad.

Unsure how long this would last, and with a significant amount of free cash in circulation, anyone who could obtain a car scrambled to get one, and there was a rapid entrepreneurial response.  Initially, adjacent Arab and Gulf states, and even, to some extent, Israel, emptied out their used cars into Iraq.  Then, through a complex chain of brokers, European, Japanese, and Korean agents started shuttling used cars into Iraq as well.  People describe the first days of border chaos, when Iraqi traders, who often could not distinguish between the recently looted $10- and $100-bills they were offering for cars, almost stormed the gates of the Zarqa free trade zone near the Iraqi border in their impatience to buy the used cars offered there.

Much of this trade occurred through Jordan, and the Port of Aqaba was soon clogged with imports to the point that regular shipments had to be moved aside to new ad hoc lots to make way for imports.  Given the added charges levied along the chain of Jordanian intermediates from the port of entry to the border with Iraq, this was a welcome economic boon for Jordan, which had been suffering from the end of its role as import intermediary during the UN Oil–for-Food Programme.

Photo: Since the U.S. invasion, over a million used cars have been imported into Iraq. (Source: Yaakov Garb) 

ITDP warned that the introduction of this quantity of used cars into a country so minimally equipped for car use would lead to congestion, air quality problems, and a demand for expanded road infrastructure, especially in Baghdad.  Since the U.S. invasion, over a million cars have been imported and about 60% of them have been registered. Despite the U.S. Secretary of the Army and Chief of Staff’s celebration of this in their New Year message as an example of the invasion’s contribution to improving the lives of the Iraqi people, some of the problems associated with this sudden motorization have begun to surface.

In response to these challenges and a gasoline shortage, and in order to control the circulation of older cars of questionable registration, the Iraqi government issued regulations in April of 2004 that all imported cars had to be newer than 2004 models, pay a 5% tax, and only be purchased after demonstration that they would replace an older car.  To the chagrin of the many middlemen involved in the trade, close to $200 million in used cars that were already in the import pipeline were stranded.  Extended discussions between Iraq and Jordan eased these requirements and temporarily lowered the vehicle age threshold to allow those newer than 2002.  Other creative solutions involved routing these cars via Syria, where their model number and other identifying details could be changed before entering Iraq through the less regulated Syria-Iraq border, or dismantling them and shipping parts to Iraq for re-assembly.

As Chris Zegras has described in the case of Peru, the liberalized, global flow of used cars can pose real problems for the recipient countries. Perhaps the regulation of these flows should reside not only in recipient countries, but also in the developed countries sending older cars that often are not permitted on their own roads.

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