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interests has made planning and implementing reforms quite dif¬cult.
Even the managing director of the state-owned Iranian Carpet Company

25
Azarpad and Heshmati-Razavi, Farsh-nameh, pp. 18 and 26“30.
26
In 2001, this ministry was merged with the Ministry of Agriculture to create the
Ministry of Agricultural Crusade.
27
Islamic Republic of Iran, Ministry of Construction Crusade, Center for Research and
Analysis of Rural Affairs (Markaz-e Tahqiqat va Barresi-ye Masayel-e Rustaii), ˜˜Naqsh-e
Farsh dar Eqtesad-e Keshvar va Jaygah-e Jahani-ye An,™™ Tabestan, 1374 (Summer 1995).
28
Ibid., p. 5, I suspect that these ¬gures are in¬‚ated and/or refer to very-low-quality
carpets.
29
Seda-ye ˜Edalat, 23 Khordad 1380 ( June 13, 2001).
30
In 1999, during Khatami™s presidency, the Carpet Roundtable (Miz-e Farsh) was
organized to devise a single supervisor for the entire carpet sector. The Carpet
Roundtable is under the auspices of the Ministry of Commerce. The Carpet
Roundtable™s governing charter can be found in Farsh-e Dastbaft-e Iran, 18 (Bahar
1379 [Spring 2000]), 44“7.
Carpets, tea, and teacups 201

recently acknowledged that ˜˜diverse and contradictory policies followed
by parallel organizations as well as the lack of a speci¬ed guide that is
accountable has caused problems in the production and export of car-
pets.™™31 Merchants have consistently criticized this ˜˜unprofessional™™
collection of production systems. In the opinion of the President of the
Association of Carpet Exporters of Iran, ˜˜the greatest dif¬culty facing the
carpet industry in the country is the [large] number of authorities in charge
of it.™™32
To carpet dealers in the Bazaar, these state organizations are direct
competitors. ˜˜All sorts of government organizations spend money giving
raw materials and paying weavers. And then they export them without
having to go through the customs. They send them to their own
showrooms and monopolize the carpet exhibitions in Iran,™™ commented
a wholesaler who said he was ˜˜reduced to a being retailer.™™ In Hamburg
importers added that not only do state organizations directly compete
with the Bazaar-based marketing system, but because they do not
conduct market research they produce carpets that are not suitable for
European markets; the designs and colors ˜˜are either poor quality or
outdated or both.™™ Therefore, they have ˜˜ruined the standing and
authenticity of Iranian carpets.™™ Since these organizations produce and
export with little pro¬t incentive, they can also sell their products at low
prices that distort the already opaque price system.
More central to the structure of carpet exports have been regulations
aimed at curbing capital ¬‚ight and requiring exporters to repatriate their
hard currency earnings through the of¬cial banking system. Carpet
exporters are obligated to repatriate foreign exchange earnings based on
the predetermined value of carpets and within an established period of
time. The policy has three principal components that I brie¬‚y discuss:
the valuation system, the date of repatriation, and the foreign exchange
rate that determines the amount of the repatriated hard currency in the
local currency.
The exact amount to be returned to the Central Bank is pre-
determined by the valuation of carpets based on an appraisal list revised
periodically by the Customs Department. These valuations, which are
also the basis of duties to be paid, are based on the price of carpets in the
domestic consumer market, or the price ˜˜on the ¬‚oor of the Tehran
Bazaar™™ (kaf-e bazaar), instead of the world market price or, ideally
from the perspective of exporters, the production price. This valuation
system assumes that exporters are able easily to recoup earnings greater

31
Nawruz, 9 Ordibehesht 1380 (April 29, 2001).
32
Dawran-e Emruz, 21 Azar 1379 (December 11, 2000).
202 Bazaar and State in Iran

than the domestic price. However, as in¬‚ation drove up prices in the
Iranian market and international competition decreased prices on the
world market, the domestic price for certain carpets exceeded foreign
market prices (this was especially the case after 1994). This valuation
system has additional perverse consequences. It ¬rst in¬‚uences the type
of carpets that are exported by affecting potential pro¬ts. In the words of
one importer in Germany, ˜˜Conducting market research in consumer
markets is useless, when customs of¬cials dictate what carpets are
pro¬table. I don™t want to export from other countries, but it makes no
[economic] sense to have to export and repatriate large sums to Iran.™™
Thus, the marketing system is less adept at adjusting export patterns to
demands in foreign markets and recouping lost market shares.
Second, repatriation of hard currency must occur within a stipulated
amount of time determined by the government. Since 1981 the time
period has ranged from anywhere between ¬ve months and fouteen
months. This system clearly restricts the ability of exporters to extend
credit to purchasers “ a factor that impacts trade in carpets, which often
take the form of consignment contracts, have generally slow turnover,
and whose sales are highly contingent on market conditions in importing
countries. This time limit for repatriation is not too restrictive for
exporters with large inventories and assets abroad: they can always
repatriate funds even when the carpets do not sell within the stipulated
time frame. However, the short time limit for the repatriation of earn-
ings places pressures on small merchants and entrepreneurs who do not
have large capital reserves available. Thus, they must either export
carpets that are assured to sell quickly and therefore not experiment with
new styles, or they must be willing to sell their exports at lower prices.
Finally and most importantly, exporters are required to sell their hard
currency earnings to the central government at the highly in¬‚ated of¬cial
exchange rate. For much of the past two decades the Islamic Republic has
maintained a highly overvalued exchange rate in order to maintain low
import prices and thus to appease both importers and consumers and
dampen in¬‚ationary pressures. This has created a black market in foreign
exchange, with differences between the of¬cial rate and the ˜˜free market™™
at times reaching 500 percent. In the early 1980s the use of the of¬cial rate
for calculating repatriation amounts led to the smuggling of carpets out of
the country and a precipitous decline in of¬cial export ¬gures from $575
million in 1980 to $237 million in 1982. In response to this downturn,
of¬cials have experimented with several modi¬cations. A system was
devised where exporters received part of the value of their repatriated
funds at the government rate, and the remainder as a certi¬cate of credit
that could be sold in the Tehran stock exchange, bringing the total rial
Carpets, tea, and teacups 203

value close to the equivalent sum based on the free market rate. At certain
other times in the past two decades (e.g. in 1985 and the early
1990s) repatriation requirements were lifted for exporters who used their
earnings to import goods. This policy attracted a number of merchants
with little interest in the carpet trade other than the possibility of
bypassing the restrictive trade policies and importing highly
pro¬table goods. Most of these new export“importers were interested in
selling their carpets quickly with little or no pro¬t in order to purchase
goods for pro¬table import. They often simply sold their carpets below
purchase prices, and thus undermined professional carpet merchants.
Yet all these policy modi¬cations were highly transitory. At moments of a
rapid decline in the value of the rial and in¬‚ationary pressure, such as in
1995, the state reimposed the overvalued exchange rates for repatriated
funds.
The capacity and willingness of the state to regulate the macro-
economy and the ¬‚ow of hard currency through these multiple export
policies created a highly volatile policy environment. To summarize, the
export regime went from being quite open in 1979“80 to being highly
regulated in 1981“3; it was gradually liberalized in 1983“7, but
restrictions were reinstated in 1988“90, followed by renewed liberal-
ization of export and currency policies in 1991, which were ended by
strict applications of controls in 1995, and since 1997 policies have
again been relaxed. To depict the ¬‚uctuations in another way, an article
in the of¬cial magazine of the Association of Iranian Handmade Carpet
Merchants in Germany calculated that Iran™s Central Bank issued
almost one circular for every business day during 1994.33 These broad
changes in policy and continual adjustments in the valuation lists, time
period for repatriation, or the exchange rate regime have been the
principal criticism of the export community. One exporter commented,
˜˜Every time I go to send a shipment, I have no idea what the duties
will be.™™ Other exporters commented that they spend as much time
tracking down information about export requirements as they do col-
lecting carpets. At the 1999 Annual Exhibition of Iranian Hand-woven
Carpets, in a survey of 134 attendees (72 percent of whom were
involved in commerce) the ˜˜lack of stable export laws™™ was cited as the
main problem facing the carpet industry by 50 percent of respondents



33
Farsh-e Iran, 80 (Khordad 1374 [May“June 1995]), 27. For a good article on
chronicling the shifts in policy and the ¬‚uctuations of exports see Daryush Rashidi-
˜Araqi, ˜˜Farsh-e Iran dar Qalamraw-e Saderat,™™ Qali-ye Iran, 3 (Zemestan 1372
[Winter 1993]), 46“56.
204 Bazaar and State in Iran

and was the most common response.34 The lack of stability of rules is
particularly problematic for carpets because they require a lot of time for
production. With such policy volatility, it is dif¬cult for producers and
traders to plan effectively and invest ef¬ciently.

Relations in the postrevolutionary carpet bazaar
The result of this highly fragmented and shifting institutional setting and
a market consisting of heterogeneous and privileged state actors has
been economic malaise and a decline in Iran™s competitiveness in the
world market. These factors have also resulted in the restructuring of the
pattern of relations in the carpet bazaar. These cumulative effects are
captured by comments made by a carpet dealer: ˜˜I am even more
careful when deciding with whom to trade. It is a dif¬cult situation now
and you cannot count on tomorrow,™™ implying political and market
volatility. When I asked him how he is careful, he said, ˜˜I don™t accept
checks from everyone and make sure that we understand all the con-
ditions of the business dealings. But in general, I deal with a few old
merchants whom I know and with whom share a past.™™
The roughly sixty-year-old carpet exporter™s comments were echoed
by many other interviewees in the Tehran Bazaar and identify a few
speci¬c factors distinct to the developments in the carpet sector. Carpet
merchants have two types of exchange relations. The last sentence of his
comment describes the ¬rst type of exchange relations. Here transac-
tions are between dealers who are ˜˜known™™ to each other through
numerous past and present interactions. They involve many of the
traditional marketing mechanisms such as long-term credit relations,
consignment of goods, and strong social relations. The forces of loca-
lization, specialization, and clientelism are quite apparent. Looking at
these transactions it appears that cooperative hierarchies continue to
exist.
However, the bazaari™s opening remarks suggest that these relations
do not encompass a large number of colleagues. Transactions with the
remainder of potential exchange partners must now take a more for-
malized, short-term, and isolated form. Bazaaris no longer have a viable
reputation system that both appraises the trustworthiness of these
exchange partners and ensures that they will comply with the terms of
the agreement. One bazaari concluded that one can ˜˜trust neither these

34
Qali-ye Iran, 26 (Mordad 1379 [ July“August 2000]), 16“22. With a response rate of
31.3 percent, ˜˜Lack of a single manager and authority in the carpet sector™™ was the
second most commonly given problem.
Carpets, tea, and teacups 205

merchants, nor their carpets.™™ Since in the carpet bazaar trust in the
exchange partner is trust in his wares, exchange does not take place
without external legal enforcement. Re¬‚ecting this growing need to
gather information about traders, a number of Iranian merchants in
Hamburg have advocated establishing an information center to regulate
traders and identify ˜˜fraudsters.™™35 Given that in the years after the
Revolution a number of new dealers have arrived in the free port and
¬‚ed after accruing debts and writing bad checks, it was deemed essential
to create such a center. When I discussed this matter with Hamburg-
based import“exporters, they mentioned that it is more dif¬cult to keep
track of new faces in the market and that contacts in Iran, which used to
be a reliable way to verify information. This is an area where third-party
or state mediation is needed. Thus, merchants call on the state to help
regulate traders, rather than goods.
Why are carpet merchants less able to evaluate the trustworthiness of
exchange partners? Today the reputation system has been eroded, as
relations within the Bazaar are less multifaceted and fewer crosscutting
ties distribute information by weaving the various hierarchies together. In
terms of an increase in single-faceted relations, both structural and spatial
factors have played a role. First, as in the Bazaar as a whole, relations have
become less enmeshed in social registers of life and quotidian interactions.
With various new entrants, such as exporters who used exports for
importing, speculators attempting to guard against in¬‚ation or pro¬t from
¬‚uctuations in foreign currency, or people who simply cannot ¬nd work in
Iran™s high-unemployment economy, the carpet bazaar has increased in
size. However, what is critical is that these new entrants are not necessarily
attached to existing networks. And, obviously short-term exchange or ¬‚y-
by-night schemes are not conducive to developing multifaceted relations.
Second, the Tehran Bazaar is no longer a vibrant and central space for
everyday interactions. In order to reduce rental, warehouse, and trans-
port costs and avoid taxes, carpet exporters have now begun to establish
large warehouse complexes on the outskirts of the city. This simple
change in location, however, has delocalized the carpet bazaars. I
realized this one day when I went to visit one of the exporters in the
Tehran Bazaar. His assistant told me that he was not coming to the
Bazaar today. When I asked whether he would be in the Bazaar
tomorrow, he said he did not know, but he doubted it. He added that
many of the bazaaris no longer come to the Bazaar; they conduct their
business over the phone and go to their large warehouses on the out-
skirts of the city. It dawned on me that it was very dif¬cult to track down

35
Qali-ye Iran, 8 (Bahar 1374 [Spring 1995]), 21“9.
206 Bazaar and State in Iran

many of the prominent carpet merchants and that when they did arrive
they were occupied with business matters and had no time for socia-
lizing with other bazaaris, let alone answering my research questions.36
In addition to this bypassing of the Tehran Bazaar, as the international
market has become more competitive, exporters have begun to cut costs
by traveling directly to rural areas and provincial bazaars in order to
reduce the need to work with brokers. Currently, a few Iranian impor-
ters in Europe and the United States have begun to integrate production
and commerce by establishing exclusive long-term purchasing agree-
ments or partnerships with producers. Vertical integration allows them
to have greater input into production and to control price competition
and uncertainty.37 All of these incremental marketing innovations,
nevertheless, act to circumvent the Tehran Bazaar completely. In the
process the physical unity of the trade, one of the means for developing
multifaceted relations, has been reduced.
Finally, there are fewer crosscutting relations that would help link the
increasingly isolated business dealings. The decline in multifaceted
relations at the level of the carpet bazaar and the more general fading of
social bonds across the Tehran Bazaar have impeded the growth of weak
ties. With traders engaging in exclusive exchanges with their past part-

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