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House," founded in 1982 as the labor wing of the now-defunct Islamic Republican Party, is the only authorized national labor organization with nominal claims lo rep. resent all Iranian workers. It works closely with the work place Islamic councils that exist in many Iranian enterprises. The Workers' House is largely a conduit of government influence and control, not a trade union founded by workers to rep. resent their interests.

The officially sanctioned Islamic labor councils also are instruments of government insluence and not bodies created and controlled by workers to advance their own interests, although they have frequently been able to block layosss or the firing of workers.

There is also a network of guild unions, which operates on a regional basis. These guild unions issue vocational licenses, fund financial cooperatives to assist members, and help workers to find jobs. The guild unions operate with the backing of the government.

No information is available on the right of workers in Iran to strike. However, it is unlikely that the government would tolerate any strike deemed to be at odds with its economic and labor policies.

b. Right to Organize and Bargain Collectively.-In practice, the right of workers to organize independently and bargain collectively cannot be documented. It is not known whether labor legislation and practice in the export processing zones disser in any significant respect from the law and practice in the rest of the country. No information is available on the mechanism used to set wages.

c. Prohibition of Forced or Compulsory Labor.- Section 273 of the Iranian Penal Code provides that any person who does not have definite means of subsistence and who, through laziness or negligence, does not look for work may be obliged by the government to take suitable employment. This provision has been frequently criticized by the Committee of Experts (COE) of the International Labor Organization (ILO) as contravening ILO Convention 29 on forced labor. In its 1990 report, the COE noted an indication by the government in its latest report to the Committee that Section 273 had been abolished and replaced for a trial period by a new provision approved by the Parliament. The Iraqi government, according to the COE, stated that the new provision was not incompatible with Convention 29, and promised to provide a copy aster the provision was translated. The COE noted that the Gov. ernment of Iraq had indicated in its 1977 report that similar regulations concerning unemployed persons and vagrants had been repealed, but had not yet complied with the Committee's request for a copy of the repealing legislation.

d. Minimum Age for Employment of Children. -- Iranian labor law, which exempts agriculture, domestic service, family businesses, and, to some extent, other small businesses, forbids employment of minors under 15 years (compulsory education extends through age 11) and places special restrictions on the employment of minors under 18. In addition, women and minors may not be used for hard labor or, in general, for night work. The extent to which these regulations are enforced by the Labor Inspection Department of the Ministry of Labor and Social Affairs and the local authorities is not known.

e. Acceptable Conditions of Work.—The Labor Code empowers the Supreme Labor Council to set minimum wage levels each year determined by industrial sector and region. It is not known if minimum wage levels are in fact issued annually or if the Labor Ministry's inspectors enforce their application. The Labor Code stipulates that the minimum wage should be sufficient to meet the living expenses of a family and should take into account the announced rate of inflation. It is not known what share of the working population is covered by the minimum wage legislation.

The labor law establishes a six-day workweek of 48 hours maximum (except for overtime at premium rates), with one day of rest (normally Friday) per week as well as at least 12 days per year of leave with pay and a number of paid public holidays.

According to the Labor Code, a Supreme Safety Council, chaired by the Labor Minister or his representative, is responsible for promoting work place safety and health and issuing occupational safety and health regulations and codes of practice. The Council has reportedly issued 28 safety directives. The Supreme Safety Council is also supposed to oversee the activities of the safety committees that have reportedly been established in about 3,000 enterprises employing more than 10 persons. It is not known how well the Labor Ministry's inspectors enforce the safety and health legislation and regulations nor whether industrial accident rates are compiled and show positive trends (Iran does not furnish this data to the ILO for publication in its Year Book of Labour Statistics).

Given the large segments of the economy exempted from the labor law, the effects of the war with Iraq, and the general lack of effective labor unions, it is unclear to what extent the provisions of Iran's labor law affect most of the labor force.

f. Rights in Sectors with U.S. Investment.—The U.S. investment which remains in post-revolutionary Iran, as reported to the U.S. Department of Commerce (sec table below), is residual investment in the petroleum sector.

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Extent of U.S. Investment in Selected Industries.-U.S. Direct

Investment Position Abroad on an Historical Cost Basis-1993


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1 Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

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In response to the Iraqi invasion of Kuwait on August 2, 1990, the President, acting under authority of the International Emergency Economic Powers Act, issued Executive Orders 12722 and 12724 which, respectively, froze Iragi government as, sets within the United States or in the possession or control of U.S. persons, and barred virtually all unlicensed transactions between U.S. persons and Iraq. This embargo remains in effect unaltered.

U.S. sanctions against Iraq incorporate all the measures contained in the numer. ous United Nations Security Council Resolutions passed and still in effect since the invasion. These resolutions forbid member states, companies and individuals from undertaking any economic intercourse with the Iraqi government or with private Iraqi firms, except in regard to goods deemed by the U.N. Sanctions Committee to be of a humanitarian nature.

Between January and August of this year, the UN Sanctions Committee was notified of $2 billion worth of food planned for shipment to Iraq, and $175 million worth of medicine. During the same period, the Committee approved shipments of $2 billion worth of other items deemed to be for essential civilian needs. Iraq's Ba'athist regime engages in extensive central planning

and management of industrial production. Small-scale industry and services and most agriculture are in private hands. While the country has extensive arable land, it is historically a net food importer. The economy is dominated by oil, which traditionally provided 95 percent of foreign exchange earnings.

The economy, already battered by the impact of three years of sanctions, apparently took a drastic turn for the worse during 1994. Reliable statistics are not available, but anecdotal evidence points to an increasingly desperate economic situation. The standard of living has been reduced to at least half of its pre-war level.

In late September, the government announced a 40 percent cut in governmentprovided rations of basic foodstuffs such as cooking oil, flour, and sugar. These rations no longer provide minimum daily caloric requirements. Rampant

inflation has made it difficult for the average Iraqi to turn to the open market to find the products now restricted under rationing. Again, reliable statistics are not available, but it is reported that the cost of basic food items has far outstripped salaries. Government troop movements to the Kuwaiti border in October led to a temporary doubling of food prices.

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Trade unions independent of the government do not exist in Iraq. Workers in private and mixed enterprises-but not pubir employecs- have the night to join local union committees, which are part of larger trade union federations at the top of this pyramid is the Iraqi General Federation of Trade Unions, linked to the ruling Ba'ath party and utilized to promote party principles and policies. The night to strike is heavily circumscribed by the Labor Law of 1987, and no strike has been reported over the past two decades.

The value of the Iraqi dinar has plunged against the dollar in the past year. In late 1993, the dinar traded on the black market at a rate of approximately 100 dinar to the dollar. In late 1994 the oMicial rate was approximately 500 dinar to the dollar, and on the black market it traded as low as 650-750 dinar to the dollar after the October troop movements. Many consumer goods and basic necessities, in. cluding medicine, are available on the black market ai highly inNated prices.

The seriousness of the economic situation is illustrated by the increasing number and severity of punishments for economic crimes. Apparent hoarding of crops has led the government to withhold seeds and fertilizer from farmers who fail to bring their crop to market. Farmers who fail to cultivate their land altogether have their land confiscated. Capital punishment has been decreed for those smuggling cars and trucks from the country and harsh penalties have been levied on currency traders and "profiteers." Merchants have been executed for hoarding and fixing prices.

Since the end of Desert Storm, it appears Iraq has been able to rebuild most of its infrastructure in telecommunications, transportation, and power, as well as oil production. This reconstruction has been concentrated in areas which support the government and which are visible to outsiders. The depth and permanence of much of this reconstruction is dificult to estimate, since it relied heavily on cannibalization and the drawdown of spare parts. Shortages of inputs and spare parts have shut down much of the country's industry.

United Nations Security Council Resolutions 706 and 712 (1991) authorized the export of $1.6 billion of Iraqi petroleum during a six-month period. Proceeds of the sale would go to a United Nations escrow account, which would be used to purchase humanitarian supplies for the Iraqi population, as well as fund other programs mandated by the U.N. The government of Iraq has refused to implement these resolutions.

In summary: 1. UN resolutions preclude trade with Iraq except approved exports to Iraq of humanitarian-related goods. 2. Treasury Department regulations and licensing requirements enforce U.S. compliance with the UN embargo. 3. Iraqi implementation of UNSCR 706 and 712 would open the possibility of a limited resumption of international oil trade for humanitarian supplies. 4. Reliable economic statistics are unavailable, and those produæd by the Government of Iraq cannot be considered accurate.

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Key Economic Indicators Continued

[Millions of U.S. dollars unless otherwise noted]



1994 1


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Money and Prices (annual percentage growth):
Money Supply (M2)


N/A Base Interest Rate 3

11.3 11.9 N/A Personal Savings Rate

19.6 17.7

N/A Wholesale Price Index


9 Consumer Price Index


14.0 Exchange Rate (USD/shekel)


2.98 Balance of Payments and Trade: (billions USD) Total Exports (FOB)*

12.48 14.08 16.20 Exports to U.S.


5.2 Total Imports (CIF)*

18.56 20.24 22.50 Imports from U.S.


4.2 Aid from U.S.


3.0 Aid from Other Countries


N/A External Public Debt 3

24.31 22.97 25.89 Debt Service Payments (paid)


1.6 Gold and Forex Reserves


6.5 Trade Balance

-5.09 -5.05 -6.3 Trade Balance with U.S.


1.0 NIA-Not available. 1 1994 Figures are all estimates based on available monthly data in October 1994. 2GDP at factor cost 'Figures are actual, average annual rates. Merchandise trade.

Sources: Bank of Israel; Central Bureau of Statistica; Ministry of Finance 1. General Policy Framework

Israel is in the midst of a four year economic expansion, with five to six percent growth projected to continue throughout the decade. Economists estimate that Israel's economy will grow by over 5 percent in 1994. Inflation, likely to reach 14 percent on an annualized basis, has replaced unemployment as the biggest cause for concern in the economy. Increased inflation is driven by soaring housing costs, higher than anticipated private consumption, and costly public sector wage agreements. The best economic news is unquestionably Israel's success in reducing the unemployment rate from over 11 percent in 1992 to approximately 7.5 percent in the third quarter of 1994. Given changes in the composition of the labor force due to the recent wave of immigration, the rate of unemployment may be approaching what some economists believe is Israel's normal unemployment rate.

An increase in imports relative to exports has caused the balance of payments desicit to widen in the first half of 1994. Increases in imports continue to outstrip export growth, despite 10 percent growth in exports in 1994. The import bulge consists of industrial inputs (which may lead to increased production), fuel, diamond and ship and airplane imports, and continued increases in Israeli tourism abroad. This trend of increased imports moderated in the third quarter. The trade deficit increased by 28 percent during the first nine months of 1994, in comparison to the same period in 1993. The Government of Israel estimates that the balance of pay. ments deficit for 1994 will exceed 2 billion dollars.

The United States continues to be Israel's single largest trading partner. Although the U.S. consistently runs a trade deficit with Israel, U.S. sales of goods and serv, ices to Israel are expanding. In 1993, exports of U.S. goods and services to Israel went up by 12 percent, and this trend continued in the first nine months of 1994. Total bilateral trade is estimated to approach 10 billion dollars in 1994, with Israel accruing a trade surplus with the United States of nearly 1 billion dollars. The U.S.Israel Free Trade Area Agreement will be completely phased-in as of January 1, 1995, with all tariffs dropping to zero. Israel retains non-tariff barriers for sensitive areas like agriculture and processed food products.

Israel's 1993 budget defícit equaled 2.5 percent of GDP. Israel finances its deficit through sale of government bonds, sale of government-owned companies, tax revenues, unilateral transfers from abroad, and borrowing on the international market. Under balanced-budget legislation passed in 1991, the deficit ceiling was reduced by a set percentage every year. In 1993, the government revised the legislation to replace mandated reductions in future years with a general requirement that each year's planned budget deficit target be less than that of the previous year. In 1994, the budget deficit is expected to reach 3 percent of GDP.

Total government debt is increasing, due primarily to borrowing under the U.S. Loan Guarantee Program. While Israel lowered several purchase taxes, corporate income tax and income tax rates for the middle class, in 1994 the tax burden rose slightly to 41 percent due to bracket creep, increased private consumption, and revenues from purchase taxes on sales of homes, whose prices continue to rise ahead of inflation. Government policies such as continued capital market reforms and shifting national priorities from housing construction and roads in the Occupied Territories to investment in infrastructure and human capital within Israel have laid the groundwork for continued growth.

Foreign investment is likely to increase as the peace process advances and the Arab League Boycott weakens. In the course of 1994, Jordan, Morocco, Tunisia and other Arab states extended new ties to Israel. The Gulf Cooperation Council (GCC) announced the discontinuance by its members of the secondary and tertiary aspects of the Arab League Boycott. 2. Exchange Rate Policy Framework

Under the "diagonal" exchange rate mechanism introduced in December 1991, the shekel soats within a band, five percent above or below an established midpoint tied to a basket of foreign currencies. The midpoint is shifted gradually against the basket on a daily basis, while the actual exchange rate responds to the demand for foreign currency. Since its introduction, the diagonal mechanism has successfully forestalled large speculative currency movements and attendant swings in reserves and interest rates. 3. Structural Policies

Prime Minister Rabin's government, up for reelection in 1996, has made some limited progress on reducing government intervention in the economy. The Rabin government has achieved more in the areas of capital market reforms and taxation, but has barely made a dent in the privatization of large government-owned companies.

Privatization efforts stalled in 1994. In 1993, the government of Israel raised USD 1.24 billion through privatization. In the first nine months of 1994, by comparison, the government generated only 50 million dollars through privatization. Even is scheduled sales are concluded of limited shares in the government-owned Shekem retail chain and Israel Chemicals Limited (ICL), and sale of the Housing and Development Corporation and the Mizrachi Bank are completed by the end of 1994, revenues will still fall far short of the 1993 levels (USD 1.24 billion) and the Government of Israel's own goals for 1994. However, Israeli officials are gearing up for 1995, to lay the groundwork for USD 1.5 billion worth of sales.

Ten government owned firms account for 90 percent of earnings of governmentowned companies: El Al, Bezek (the national telecommunications firm), Israel Oil Refineries, Israel Aircraft Industries, Israel Military Industries, Israel Electric Corporation, Israel Shipyards, Zim (the national shipping company), and the Housing and Development Corporation. Bezek, ZIM, Israel Shipyards and El Al are all targets for partial or substantial sale in the next twelve to fifteen months.

Capital market reform and liberalization of foreign exchange movements initiated in 1987 have continued, sharply reducing government involvement in the allocation of capital and integrating the Israeli banking system more closely with international financial markets. Recent liberalizations include: elimination of constraints on private sector investment in real assets abroad, allowing private sector investment in foreign financial assets as well as long term savings funds to invest in securities overseas, loosening of foreign currency restrictions on Israeli citizens traveling abroad, and opening the Israeli capital market to foreign corporations.

The overall tax burden for Israelis has increased over the last few years, largely due to bracket creep. The government announced reductions in indirect taxes and income taxes in 1994, but initiated a new capital gains tax on stock exchange carnings effective January 1, 1995. In addition, new taxes to pay for health and pension fund reforms may be implemented in 1995. Tax levels are higher than rates in Japan or the U.S., but roughly comparable to European standards. A U.S.-Israel double taxation treaty went into effect January 1, 1995. 4. Debt Management Policies

Israel's net external debt increased in 1994 (8.9 percent in first half of the year), due to increased borrowing under the Loan Guarantee Program and increased deposits by foreigners in Israeli banks. The government's foreign debt reached $21.4 billion dollars or 79 percent of total external debt. Israel's debt to GDP ratio rose to 27 percent, up from 26 percent in 1993.

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