But in Croatia suppliers, wholesalers and distributors are struggling with a nightmare of red tape, geography and huge mark-ups which are pushing the prices of their goods beyond the reach of ordinary consumers, and pushing them out of business. The introduction of Value Added Tax in January this year added to the burden and badly affected cash flow in the system, with interest rates creeping to their highest levels in years.

``VAT was the last drop in an already full glass. But we haven't seen the worst effects of it yet,'' said an Austrian distributor Miho Glavic at AWT which imports and distributes Proctor and Gamble and Nestle Ltd products among others. ``VAT has to be paid for all kinds of products immediately after the goods have been imported and cleared...Thisadditional financial burden for importers and retailers has badly affected cash flow in our country,'' said director Goranko Fizulic of the Magma distribution company in Zagreb. Magma is one of the biggest importers in Croatia, importing and distributing Kellogg's, Uncle Ben's and Johnson & Johnson products.

Importers have been hit especially hard as they have no way of avoiding the tax when bringing goods into Croatia. Local suppliers are said to prefer doing business under-the-counter to avoid the tax altogether, with a new black market emerging. Glavic said VAT collection was rigid and the government was making a lot of money from it, but it was pulling cash out of the system and leading to the disappearance of small businesses.