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The Economic Colonization of Iraq: Illegal and Immoral

[ I learned of this important paper through InformationClearingHouse.info. –BL ]

Testimony to the World Tribunal on Iraq, International Forum on Globalization, New York, May 8, 2004

by Antonia Juhasz

The Bush Administration is using the military invasion and occupation of Iraq to advance a corporate globalization agenda that is illegal under international law, has not been chosen by the Iraqi people and may ultimately prove to be even more devastating than twelve years of economic sanctions, two U.S.-led wars and one occupation. The Administration’s ultimate goal is to take the agenda to the entire region.

In direct conflict with its obligations under international law, the Bush Administration is fundamentally altering Iraq’s economic laws to U.S. corporate advantage and is not adequately restoring and providing Iraqis with fundamental necessities such as water and electricity. Fortunately, clear alternatives exist to ensure that the U.S. adheres to its obligations and that Iraq’s reconstruction is achieved. These policies are provided at the end of this testimony.

The goal of the Bush Administration, as stated in the economic orders already enacted in Iraq is to, “transition [Iraq] from a … centrally planned economy to a market economy.”

This goal is explained even more clearly by BearingPoint, Inc. — the Virginia based corporation that has received the $250 million contract to facilitate this transition. The contract states:

” It should be clearly understood that the efforts undertaken will be designed to establish the basic legal framework for a functioning market economy; taking appropriate advantage of the unique opportunity for rapid progress in this area presented by the current configuration of political circumstances… Reforms are envisioned in the areas of fiscal reform, financial sector reform, trade, legal and regulatory, and privatization.”

Transformation of an occupied country’s fundamental laws is illegal under international law. It directly violates the international convention governing the behavior of occupying forces, the Hague regulations of 1907 (the companion to the 1949 Geneva conventions, both ratified by the United States), as well as the U.S. Army’s own code of war? as stated in the Army field manual “The Law of Land Warfare.” Article 43 of the Hague Regulations requires that an occupying power “re-establish and insure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country.” Resolution 1483 of the UN Security Council issued in May 2003, specifically instructs the occupying powers to follow the Hague Regulations and the Geneva Convention in Iraq. Indeed, in a leaked memo written on March 26, 2003, the British attorney general, Lord Goldsmith, warned Tony Blair that “the imposition of major structural economic reforms would not be authorized by international law.”

In other words, the occupying power is like a temporary guardian. It is supposed to restore order and protect the population but still apply the laws in place when it arrived. As Naomi Klein has written, “bombing something does not give you the right to sell it,” yet this is precisely what the Bush Administration is doing.

Changing Iraq’s Laws

In direct conflict with U.S. government obligations under international law, the Bush Administration has begun fundamentally altering the economic laws of Iraq. For example, the provision in Iraq’s Constitution outlawing privatization of key state assets has been over-ridden, as has the law barring foreigners? other than citizens of Arab countries? from owning property or investing in Iraqi businesses. Both the tax code and the banking laws have been changed.

Other changes outlined in the BearingPoint contract include the near elimination
of the guaranteed food program and “reestablishing”
property rights to agricultural land and housing. Iraqi law provides
for subsidized housing, cheap energy and free food. The food program uses
300 government warehouses and more than 60,000 workers to deliver a billion
pounds of groceries every month? a basket of rations guaranteed
to every citizen, rich or poor. BearingPoint plans to phase out this program
to all but the neediest Iraqis, while transitioning the agricultural sector
to a market-based industrial model with an emphasis on export trade and
luxury crops. BearingPoint explains that “now may be the time to
look beyond traditional patterns and explore new market potential with
new products such as high valued fruits and vegetables, flowers, seed
export and other possibilities.”

The exhaustively well-documented devastating impacts of export-led industrial agriculture? particularly based on luxury crops? on countries around the world as implemented by the International Monetary Fund (IMF), World Bank, World Trade Organization (WTO), North American Free Trade Agreement (NAFTA) and other institutions and agreements, demonstrates the danger that these proposed changes pose to Iraq. Those who have been made landless, jobless and impoverished by them are increasingly raising their voices in opposition. One of the most dramatic demonstrations of which occurred at the most recent WTO ministerial meeting in Cancun, Mexico with the protest-suicide of South Korean farmer Lee Kyung Hae. Thus, it should not come as a surprise that conflicts over these same policies have led to the collapse of talks at both the WTO and the Free Trade Area of Americas in the last year alone. Clearly, there is no international consensus that such policies will aid Iraq’s reconstruction.

The Bush Administration’s proposed changes for Iraqi law go even further, with a special focus on Iraq’s oil. BearingPoint describes how current Iraqi commercial law is “woefully deficient in terms of establishing a market-friendly legal and regulatory environment for business formation and operation.” Changes to those laws will therefore be necessary “to assure an appropriate legal and regulatory framework for major utilities such as gas, oil, water, and power.” The contract includes every sector of the Iraqi economy, from public services, media, banking, investment, taxes, agriculture and the oil sector — implementing “private-sector involvement in strategic sectors, including privatization, asset sales, concessions, leases and management contracts, especially those in the oil and supporting industries.”

The Bremer Orders

Iraq’s laws are being replaced and the BearingPoint contract implemented by L. Paul Bremer, Administrator of the Coalition Provisional Authority (CPA) in Iraq. The Bremer Orders most relevant to this discussion are detailed below.

Bremer Order #39: Foreign Investment

Bremer Order #39, enacted on September 19, 2003, has five key elements: (1) Privatization of state-owned enterprises; (2) 100% foreign ownership of businesses in all sectors except oil and mineral extraction, banks and insurance companies (the latter two are addressed in a separate order); (3) “national treatment” of foreign firms; (4) unrestricted, tax-free remittance of all funds associated with the investment, including, but not limited to, profits; and (5) 40 year ownership licenses which have the option of being renewed.

  1. Privatization
  2. The Order allows for privatization of all state-owned entities. It is difficult to overstate how fundamental a change this is to the Iraqi economy. As the preamble to the Order explains, it will move Iraq from a “centrally planned economy to a market economy” in one fell swoop by U.S. fiat. This will involve some 200 state-owned enterprises. Thus, everything from water services, electric utilities, schools, hospitals, television and newspapers, to prisons could be privatized under the Order.

    The water sector is already being “reconstructed” by the Bechtel Corporation of San Francisco? one of the top ten water privatization companies in the world. Bechtel is the second largest recipient of reconstruction dollars in Iraq after Halliburton? totaling nearly $3 billion. Bechtel’s contract includes the repair of Iraq’s water, sewage and electricity systems, as well as many of its hospitals and schools.

    Cliff Mumm, head of Bechtel’s Iraq operation, told the San Francisco Chronicle that Iraq “has two rivers, it’s fertile, it’s sitting on an ocean of oil. Iraq ought to be a major player in the world. And we want to be working for them long term.”

    Bechtel’s track record does not bode well for the Iraqi people-in fact, the citizens of Bolivia have written a letter to the people of Iraq warning them of what to expect from Bechtel. A subsidiary of Bechtel privatized the water systems of Cochabamba, Bolivia and immediately sent prices sky-rocketing. Families earning a minimum wage of $60 per month faced water bills of $20 per month. The citizens rose in protest and at least one seventeen year-old boy lost his life to Bolivian troops sent into the streets to defend Bechtel’s right to privatize with deadly force. Ultimately, the government relented and cancelled the contract. Bechtel has responded with a $25 million lawsuit against Bolivia for lost profits.

    Not surprisingly, when Thomas Foley, former director of Private Sector Development for the CPA, announced a list of the first state enterprises to be sold off last fall which included cement and fertilizer plants, phosphate and sulfur mines, pharmaceutical factories, and the country’s airline, there was immediate unrest. With anywhere from 50% – 70% of the Iraqi workforce already unemployed, additional layoffs — which always follow on the heels of privatization — were unacceptable. Furthermore, those remaining workers who still have jobs only receive “emergency pay” mandated by the CPA — about half of what they made before the war, while prices have skyrocketed and the social safety net has been virtually eliminated. The CPA promised that the U.S. corporations doing the reconstruction would solve the unemployment problem, promising 300,000 jobs in an August 13, 2003 letter. Only a handful of these jobs have materialized. One reason is that many firms are bringing in non-Iraqis to do the bulk of the work.

    Thus, privatization was met with stiff organized resistance. In response, Bremer was forced to put the immediate privatization plans on hold for the short-term. However, the long-term plans are clear. BearingPoint, the U.S. Agency for International Development (USAID) and others both in or contracted by the U.S. government will implement the majority of the economic policies with the new Iraqi government. Therefore, implementation can wait until the friction over how that government is created is resolved. Furthermore, the process of preparing for privatization has not slowed, while the emphasis on privatization is already rearing its head in Iraq. For example:

    • On April 25, 2004, Iraq’s minister of public works told The Independent that Iraq was considering privatizing its water industry to “fund essential works.” While the U.S. government is obligated to ensure that water is provided to the people of Iraq, it is telling that the Minister did not discuss going to the CPA to demand restoration of water services nor to Bechtel to demand that it fulfill the requirements of its contract. Rather, she speaks immediately of privatization.
    • Meetings among global corporations to discuss privatization and investment in Iraq have been taking place unabated at least since the invasion. For example, in February, the U.S. Commerce Department held a “Doing Business in Iraq” conference attended by some five hundred U.S. companies including Boeing, Caterpillar, DaimlerChrysler, Microsoft, IBM, Motorala, Bechtel and Flour. This conference took place immediately following vocal criticism by the Iraqi Governing Council’s top representative in Washington that the U.S. was passing over Iraqi firms in awarding reconstruction contracts. The latest of these meetings took place just over a week ago in London. Called “Iraq Procurement 2004? Meet the Buyer,” it was sponsored by ExxonMobil, Oxy, Volvo, Shell, Raytheon and ChevronTexaco? among others. You can visit web sites like www.export.gov/Iraq or www.iraqprocurement.com to learn more and similar meetings taking place monthly around the world.
    • The CPA’s continued interest in luring the private sector to Iraq is evidenced by the fact that it recently named a new director of Private Sector Development. He is Ari Fleischer’s brother, Michael.
    • Most importantly, it is abundantly clear from BearingPoint’s contract that full implementation is intended to take place after the new Iraqi government is in place — not in the few months remaining before the “hand-over.” The contract is for three years with the option of renewal. They are not going anywhere. Of course, the contract specifically states that while there is a commitment to place “Iraq’s leaders and stakeholders in the driver’s seat” their input on policies will only be used “as long as these are consistent with the overall objectives of the project and with USAID policies, regulations and guidelines.”
    • In regard to whether the Iraqis intend to change these U.S. imposed laws, Sinan Shabibi? the governor of Iraq’s central bank, told an investors services roundtable in Washington recently that the international financial community need not fear Bremer’s banking laws will be abolished after the hand-over of sovereignty on June 30 because, “It is unreasonable to enact an economic strategy and then abolish it within two month.” Thus, U.S. pressure is already clearly being felt in Iraq and on its leaders.

  3. 100% foreign ownership
  4. All of Iraq’s businesses can be completely owned, run and employed
    by non-Iraqis. Iraq, like many countries? particularly developing countries? had a ban on foreign ownership (many require partnerships with local
    companies as well) in order to ensure local retention of revenue, employment
    and other financial gains. Order #39 states that Iraq cannot restrict
    access to foreign owners to any sector of the economy except resource
    extraction.

    Thus, even Iraq’s media could be completely owned by U.S. companies.
    The first step towards U.S. ownership may have come with the awarding
    of a $90 million contract to Science Applications International Corporation
    (SAIC) of San Diego, CA, to “restore broadcast media to uncensored operation.”
    According to the Center for Public Integrity (CPI), SAIC will be rebuilding
    Iraq’s mass media, including television stations, radio stations and
    newspapers, in a program called the Iraqi Media Network. However, not
    much more is known because the Pentagon has steadfastly refused to release
    any specific information about the contract. What little information
    that has leaked out has come mainly from disgruntled employees and press
    freedom advocates, who have alleged military censorship, cronyism and
    significant mishandling of the work. In just one example, SAIC used
    the U.S. government-run Voice of America to patch together nightly news
    shows made up entirely of dubbed stories from U.S. television network
    news shows.

    Concerns over foreign ownership go farther. Iraq is home to the most
    extensive river system in the Middle East, including the Tigris and
    Euphrates rivers and the Greater and Lesser Zab rivers. As Stephen C.
    Pelletiere, a former CIA senior political analyst on Iraq, wrote in
    the New York Times, “America could alter the destiny of the Middle
    East in a way that probably could not be challenged for decades? not
    solely by controlling Iraq’s oil, but buy controlling its water. Even
    if America didn’t occupy the country, once Mr. Hussein’s Baath Party
    is driven from power, many lucrative opportunities would open up for
    American companies.” The military invasion of Iraq has put Bechtel in
    the position to become one of these companies.

  5. National Treatment
  6. Order #39 states that “A foreign investor shall be entitled to make
    foreign investments in Iraq on terms no less favorable than those applicable
    to an Iraqi investor.” National treatment makes it impossible to require
    that Iraqis be given preferential treatment (over foreigners) as investors,
    owners, contractors or employees. Thus, foreign companies can do all
    of the reconstruction, own every business, do all of the work and not
    a single Iraqi need to employed or involved in the process whatsoever.

    This is a particularly troublesome provision given reports of bloated
    U.S. corporate budgets. For example, Time magazine recently
    reported that an American firm was awarded a $15 million contract to
    build a cement factory in Iraq (using U.S. taxpayer dollars). When the
    firm was prevented from doing the work, an Iraqi businessman (using
    Saddam’s confiscated funds) spent just $80,000 to build the same factory.

    National treatment is also a powerful tool used by companies to circumvent
    domestic regulations on the environment, public health and worker and
    consumer safety. Virtually every challenge brought to such laws under
    the investment chapter of the NAFTA include claims that the government
    violated national treatment. For example, national treatment was one
    of the tools used successfully by the Virginia-based Ethyl Corporation
    to force the government of Canada to reverse its ban on the gasoline
    additive MMT, a ground water pollutant also believed to be a human carcinogen.
    Ethyl sued and Canada settled: reversing its ban, paying Ethyl $13 million
    in compensation for its “trouble,” and writing a letter of apology.

    Given corporate success in challenging such laws in Canada, the United
    States, and Mexico, it is likely that Iraq’s environmental, health,
    and public interest laws?or those that any new government may wish
    to enact?will be severely at risk.

    The impact of this one provision alone is devastating and has facilitated
    the Bush Administration’s failure to meet its obligations under
    international law to provide for the basic necessities of Iraq.

    Failure to Meet International Obligations to Provide for Iraqi Basic
    Services

    Water

    The Washington Post tells the story of Al-Ani, a PhD civil engineer
    with 40 years experience who is one the top experts in water treatment
    in Iraq. He is an employee of the General Co. for Water Projects, one
    of the 200-odd ventures in Iraq that are owned wholly or in part by
    the state and have been told they are ineligible for contracts being
    issued by the occupation. The company’s 187 workers still collect
    their government salaries but they now spend their days playing video
    games, reading books and chitchatting to pass the time. This story is
    repeated over and over again across Iraq. Qualified, experienced and
    interested Iraqi engineers and workers sitting idle while U.S. corporations
    blunder about Iraq at the expense of Iraqi health and U.S. tax-payer
    money.

    Bechtel has the contract that could have gone to General Co. Rather
    than hire or talk to Al-Ani or his numerous colleagues, Bechtel employees
    spent their first months in Iraq touring the country doing an assessment
    of the water and electrical systems only to discover that the systems
    were in much worse condition and more complicated than they had originally
    assumed. This explains why Bechtel is not living up to the conditions
    of their contract for water and electricity provision and why the U.S.
    government doesn’t care. According to the San Francisco Chronicle,
    USAID, which oversees Bechtel’s contract, has “reduced expectations
    of what could be fixed, how long repairs would take and how much money
    would be required.” Good for Bechtel, but too bad for the people
    of Iraq who are virtually without electricity or water and are living
    in sewage-filled streets.

    According to USAID’s own reports, one year after the invasion
    “Baghdad’s three sewage treatment plants, which together comprise
    three-quarters of the nation’s sewage treatment capacity, are inoperable,
    allowing the waste from 3.8 million people to flow untreated directly
    into the Tigris River. In the rest of the country, most sewage treatment
    plants were only partially operational prior to the conflict, and shortage
    of electricity, parts and chemicals have exacerbated the situation.
    Water that is pumped through the system is largely untreated, especially
    in South.”

    The most extensive on-the-ground assessment of Iraq’s water systems
    by Dahr Jamail for the consumer watchdog group Public Citizen reached
    the same conclusion. Drinking water throughout the country is in a crisis
    state, with some villages having no access to water while larger cities
    receive water approximately 50% of the time. This has led to vast outbreaks
    of cholera, diarrhea, nausea and kidney stones, among other diseases.

    Electricity

    The same condition exists for Iraq’s electricity? reconstruction
    of which is also Bechtel’s responsibility. According to a memo
    by an anonymous U.S. government official written to the CPA in early
    March 2004, there is “no consistency” in power flows in Iraq.
    “Street lights function irregularly and traffic lights not at all”
    “Electricity in Baghdad fluctuating between three hours, on and off,
    in rotation, and four hours on and off.”

    U.S. Airforce Colonel Sam Gardiner, author of a 2002 study of the likely
    effect US bombardment would have on Iraq’s power system, recently
    told the Village Voice, “I continue to get very upset about
    the electricity issue… Frankly, if we had just given the Iraqis
    some baling wire and a little bit of space to keep things running, it
    would have been better. But instead we’ve let big US companies
    go in with plans for major overhauls.”

    Thus, while Bechtel reports that they have “returned electricity
    generation to pre-conflict levels,” this claim is not supported
    by the U.S. government or Iraqis themselves. Power outages lasting for
    24 hours a day are still more often the rule than the exception. The
    Daura power plant, Baghdad’s largest, which should supply one third
    of the city’s generating capacity was producing only 10% as recently
    as December. Helmut Doll, the German site manager for Babcok Power,
    a s subcontractor of Siemens, told Newsweek that “Bechtel
    only came and took photos. We can’t judge Bechtel’s work progress
    because they’re not here.”

    The same story is repeated across Iraq. Either they haven’t seen
    Bechtel, or the work that has been provided is inadequate and intermittent.
    Bechtel representatives have admitted as much, citing the constant sabotage
    of their work and their ill-preparedness going in, commenting that they
    did not realize how intertwined the electricity, water and sewage systems
    were, greatly complicating their repair efforts.

    Of course, the Iraqis knew this and could have told them? if
    they had asked. Iraqis point out that after the first Gulf War, they
    were able to restore electricity in just three months. Mohsen Hassan,
    technical director for power generation at the Iraqi ministry of electricity,
    told Southern Exposure Magazine, “We, the Iraqi engineers,
    can repair anything, but we need money and spare parts and so far Bechtel
    has provided us with neither. The only thing that the company has given
    us so far is promises.”

    Schools and Hospitals

    Bechtel has also failed in its contractual obligations to restore hospitals
    and schools in Iraq. Bechtel repeatedly cites the 1595 schools it has
    “rehabilitated” in Iraq. However, this is less than a fifth
    of Iraq’s 10,000 schools. And, as Newsweek reported, “many
    of the rehabilitated schools don’t look ready for the morning bell.”
    The constant complaint from Iraqi Ministry of Education officials and
    headmistresses and ministers of schools that Bechtel has worked on,
    is that the work is either non-existent or shoddy, often putting students
    health and safety at risk.

    An internal study by U.S. Army personnel cited in Southern Exposure,
    strongly criticized Bechtel’s attempts to renovate Iraqi schools.
    Comments such as the following were common: “the new fans are cheap
    and burned out immediately upon use. All inspected were already broke.”
    “Lousy paint job. Major clean-up work required. Bathrooms in poor
    condition.” Southern Exposure visited four Baghdad schools
    all listed as renovated by Bechtel. They found rain leaking through
    ceilings, shorting out power, new paint peeling and floors that had
    not been completely repaired. New brass taps and doors painted, but
    toilets and sinks that had not been touched. At Hawa School, for example,
    the headmistress showed the authors toilets where a new water system
    had been installed, pipes, taps and a motor to pump the water. However,
    the motor didn’t work, so the toilets reeked with unflushed sewage.
    The conditions reported in Bechtel hospitals are similar? shoddy
    or non-existent work accompanied with desperate and unmet human needs.

    The Bush Administration is not even living up to its own requirements
    under national treatment because it is treating foreign providers differently.
    The U.S. has banned countries that did not participate in the invasion
    for profiting off of the invasion. Thus, in many cases, repairs that
    could be performed quickly to the water and electrical systems are left
    undone because they require parts from countries such as Russia, Germany
    or France.

  7. Unrestricted Repatriation of Profits
  8. Order #39 authorizes foreign investors to “transfer abroad without
    delay all funds associated with [their] investment.” Thus, they
    can put their money wherever they like and take it out whenever they
    want to, “without delay.” Nothing need be reinvested locally
    to service the floundering Iraqi economy. Nothing need be targeted to
    help specifically damaged regions, communities or services. All the
    money can go home with the foreign owners and they can take out their
    investments at any time.

    U.S. corporations are already reaping staggering revenues from their
    Iraqi operations. However, due to Order #39, not a cent of this money
    need be reinvested in Iraq. Halliburton, with contracts worth as much
    as $16.8 billion in Iraq has seen its revenues increase 80% in the first
    quarter of 2004 compared to the same quarter of 2003. According to the
    Financial Times, they are receiving steep “profits from
    their Iraq operations.” Bechtel, with nearly $3 billion in Iraqi
    contracts, has seen their non-U.S.-generated revenues increase by a
    whopping 158% since last year — turning around a three-year slump.
    Bechtel is not publicly traded and therefore does not have to reveal
    profits. However, both Bechtel and Halliburton have cost-plus contracts
    that guarantee a specified rate of profit on their work. ChevronTexaco
    which has a comparatively minor contract for transporting Iraqi oil
    has also seen revenues soar.

    It is important to note that neither Halliburton nor Bechtel participated
    in the most recent round of Iraq reconstruction contract bids. A good
    guess as to why would be the constant barrage of public criticism they
    have faced over the failures in Iraq.

    These are just three of the hundreds of U.S. companies now operating
    in Iraq? all of their money could return to the U.S.? non
    of it need be used to benefit Iraq whatsoever.

    Unfortunately, we don’t really know how much money the Iraqis
    are missing out on, nor exactly what work is being done nor by whom.
    This is because, as the Center for Public Integrity? the organization
    which has done the most extensive Freedom of Information Act requests
    and investigations into these contracts? so aptly states, “it
    [does] not appear that any one government agency [knows] that total
    number of contractors or what they are doing.” This finding has
    since been upheld by both the General Accounting Office and the Pentagon’s
    inspector-general – both of which have recently concluded studies demonstrating
    little or no government over site over contractors and contracts being
    granted, renewed and increased with virtually no inspection of written
    documents nor work performed.

    Finally, returning to repatriation of profits? the potential
    long-term impact of this provision for the Iraqi economy is monumental,
    as evidenced by the impact of the same rules on the “financial
    tigers” of East Asia, as well as Argentina and Russia. Each of
    these countries experienced devastating financial collapse when foreign
    investors simultaneously withdrew billions of dollars from their economies
    while the governments were powerless to enact restrictions on either
    the inward or outward flow of investments. Iraq is now poised to meet
    the same fate.

  9. 40-year leases
  10. Under Order #39 Iraq will be locked in to its contracts under these rules for 40 years, with an option of unlimited renewal. If the contracts are broken, the Order gives the companies the legal authority to enact any international trade agreement of which both countries are party. If the Bush Administration is successful in implementing its trade goals outlined below, the U.S. will have a Bilateral Investment Treaty (BIT) with Iraq. The BIT provides access to courts such as the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID), a venue notorious for its undemocratic, untransparent and unjust proceedings and rulings on behalf of multinational corporations.

Bremer Order #40: Banking

Order #40 fundamentally alters Iraq’s banking structure by turning this sector from a state-run to a market-driven system over night by allowing foreign banks to enter the Iraqi market and to purchase up to 50 percent of an Iraqi bank. Specifically, it permits six foreign banks over the next five years the right to enter the Iraqi market.

A similar provision included in NAFTA paved the way for Citigroup to purchase Mexico’s largest commercial bank, Banamex. In Aotearoa/New Zealand, liberalization of financial banking services left every one of the nation’s banks, including the bank of New Zealand, under foreign control. Affordable financial services and low-cost loans quickly dried up? so much so that the government proposed setting up a new bank, the People’s Bank, to be owned and operated by the government itself in order to redress the inequities of the foreign-owned banks.

Local ownership of banks is critical because it facilitates access to credit for all sectors of society. It may deter disloyal behavior; foreign finance companies are much more likely to flee in times of crisis. And ensuring that a foreign company holds some domestic assets within the country in which it is operating can help ensure it can satisfy any legal liabilities it might accrue. Moreover, Iraq simply does not have adequate regulatory structures in place to handle the economic power and marketing prowess of global financial companies. For example, Iraq does not have a counter-part to U.S. laws such as the Community Reinvestment Act — obligating banks to make credit available in lower-income neighborhoods — and the Truth in Lending Act — requiring full disclosure to consumers of the cost of loans. Finally, with the banks under foreign ownership, the lobby against adoption of such rules may be too strong to fight.

JPMorgan, the second-largest bank in the U.S., which was implicated in the Enron scandal, has been awarded a contract to run a consortium of 13 banks from 13 countries that will constitute the Trade Bank of Iraq. The Trade Bank may be just the point of entry for JPMorgan, giving it “first dibs” on the full privatization yet to come.

Bremer Order #37: Taxes

Order #37 changes Iraq’s tax law by implementing a flat tax that provides for a marginal income tax rate of 15% for both corporations and individuals. Thus, an Iraqi earning .50 cents per hour will pay the same tax rate as another earning $1 billion an hour. Flat rates have a record of reducing the tax burden on the poorest in the economy, increasing the burden on the middle class tremendously, and drastically reducing the taxes paid by the wealthiest in society? particularly corporations.

As the Washington Post reports, “it took L. Paul Bremer, the U.S. administrator in Baghdad, no more than a stroke of the pen Sept. 15 to accomplish what eluded the likes of publisher Steve Forbes, Reps. Jack Kemp (R-N.Y.) and Richard K. Armey (R-Tex.), and Sen. Phil Gramm (R-Tex.) over the course of a decade and two presidential campaigns.”

Bremer Order #12: Trade Liberalization

On June 12, Bremer signed the “Trade Liberalization Policy,” suspending “all tariffs, customs duties, import taxes, licensing fees and similar surcharges for goods entering or leaving Iraq, and all other trade restrictions that may apply to such goods.” This led to an immediate and dramatic inflow of cheap consumer products, which has essentially wiped out all local providers of the same products. This could have significant long-term implications for domestic production as well.

But tariff elimination is just the beginning. In early February 2004, BearingPoint was right on schedule when the Bush Administration achieved WTO observer status for Iraq? even without a government? over the strong objections of many of our European allies. This is the first step towards WTO membership, which also requires the fundamental transformation of Iraq’s laws to bring them in to WTO-compliance.

The longer-term goal was announced by President Bush just two months after the invasion of Iraq. On May 9, 2003, President Bush announced plans for an U.S.-Middle East Free Trade Area (MEFTA) by 2013? bringing all of the policies outlined above, and more, to the entire region.

The Middle East, insulated by oil revenue, has historically been less susceptible than other regions to the extreme sacrifices required by governments under corporate free trade agreements. But with the invasion and occupation of Iraq, the Bush Administration demonstrated that it would defy global public opinion and the United Nations to use military force when and where it deems necessary. Thus, it can now return to the more traditional model of advancing corporate globalization, the free trade agreement.

As George Wolfe, director of Economic Policy for the CPA told the New York Times, “in the long run, the United States hopes that Iraq will become an economic model for the Middle East.” Or, put more bluntly by Neil King of the Wall Street Journal, “For many conservatives, Iraq is now the test case for whether the U.S. can engender American-style free-market capitalism within the Arab world.”

Bringing the U.S. in to Accord with International Law and Morality

It is illegal and immoral for the Bush Administration to use the military invasion and occupation of Iraq to fundamentally alter that nation’s basic laws. It is also illegal and immoral for the Bush Administration to continue to ignore its obligation under international law to provide for the basic necessities of Iraqis. The first step needed to bring the U.S. in to accord with international law and morality is to repeal the Bremer Orders detailed above. The second step is to allow detailed public scrutiny of the BearingPoint plan in both Iraq and the U.S. Most of it should be repealed. At most, it should provide only for the short-term economic necessities required of the U.S. under international law to restore Iraq’s basic infrastructure and services and to ensure that the economy does not collapse during reconstruction.

Once the Iraqi government is elected, it is the Iraqis themselves who must determine their long-term economic future? not the U.S. In the short-term, the following alternatives drawn from more detailed analysis provided by International Occupation Watch Center in Baghdad, the Institute for Policy Studies in Washington, DC and the International Forum on Globalization (www.occupationwatch.org, www.ips-dc.org, www.ifg.org), are offered to help restore the Iraqi economy to a functioning position.


  • The military occupation of Iraq must end.
  • Iraq’s foreign debts, accrued by Hussein in the suppression of the people of Iraq, must be forgiven.
  • Only with the end of the U.S.-UK occupation should the United Nations, including an UN-commanded multilateral peacekeeping force, return to Iraq. Their mandate should be for a very short and defined period, with the goal of assisting Iraq in reconstruction and overseeing election of a governing authority.
  • As belligerent powers who initiated the war, and as occupying powers, the U.S. and the UK are obligated to provide for the humanitarian needs of the Iraqi people and to pay the continuing costs of Iraq’s reconstruction, including the bulk of the cost of UN humanitarian and peacekeeping deployments. Washington should reverse the spending priorities of its $87 billion request from Congress, and turn over to full UN authority (on behalf of the Iraqi people as a whole, not simply given to the U.S.-appointed Council) a starting grant of at least $75 billion (the initial amount Washington spent on waging the war) for reconstruction in Iraq.
  • The $15 billion (out of the $87 billion) requested by the Bush administration for Iraqi reconstruction is insufficient to meet Washington’s obligations under international law. The $65 billion scheduled for the Pentagon to continue the occupation of Iraq should be challenged. The additional reconstruction funds should not come from ordinary taxpayers. They should be raised from (a) an excess profits tax on corporations benefiting from the war and post-war privatization in Iraq; and (b) the Pentagon budget lines currently directed at continuing war in Iraq.
  • Reconstruction of Iraq should be based on rebuilding the economy to maximize fulfilling the needs of the Iraqi people. All contract processes should be completely transparent and accessible to Iraqis. The awarding of contracts should be done with preference given first to Iraqi companies, experts and workers. Preference should then be given to international humanitarian organizations with a record of performing similar reconstruction work. If a non-Iraqi private company must be used, the contract must be open to global competition and the profit margin must be held as low as possible at a fixed fee. Oversight must be transparent, public and thorough.
  • Labor laws should ensure protection and security for local workers.
  • A broad U.S. Federal Government investigation must be launched to scrutinize U.S. corporate expenditures and actions in Iraq, with the power to impose or seek punitive measures for contract violations and over-expenditure, and to provide oversight, regulation and accountability of U.S. contractor’s work in the application of their contracts. The citizens of Iraq and the U.S. Congress and public should be informed of the findings.
  • Iraq should be allowed to join the worldwide movement for local sustainability by moving away from export oriented economics that make trade and multinational corporations the basis of economic development. Government spending, taxes, subsidies, tariff structures, etc. should be reoriented to support local environmentally sustainable production that meets local needs (these ideas are expanded upon in the IFG publication, Alternatives to Economic Globalization).
Politics

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