ORDER #39

Top 10 U.S. Contractors in Iraq and Afghanistan

KBR/Haliburton $2.3 Billion
Bechtel $1.03 Billion
International American Products $527 million
Perini Corporation $525 million
Contrack International $500 million
Fluor $500 million
Washington Group International $500 million
Research Triangle Institute $466 million
Louis Berger Group $300 million
Creative Assosiates International $217 million

 

 

 

Capitalism gone wild - Iraq
Tikkun, Jan-Feb, 2004 by Antonia Juhasz

"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."

--Neil King Jr., the Wall Street Journal, May 1, 2003.

The reconstruction of Iraq has begun. Not the reconstruction of vital public services, nor of public security, but rather the radical reconstruction of its entire economy. The quote above is an understatement. The United States has nothing like the unbridled capitalism that the Bush Administration is unleashing on Iraq. It might best be described as "capitalism gone wild"--no restrictions, no morals, and the myth of no consequences. But just like teenagers returning from spring break, when the reality of what the Bush Administration is doing is fully appreciated, it may be too late for the people of Iraq to recover.

Conditions in Iraq are desperate. On November 11, 2003, the international health charity, Medact, released a report finding that public services in Iraq are in a state of collapse. Dr. Sabya Farooq, author of the report, told the BBC: "It's mainly the ongoing violence and insecurity which, in addition to the breakdown of public health services, is posing the main risk to public health." In the past year, maternal mortality rates have increased, acute malnutrition has almost doubled, and water-borne diseases and vaccine-preventable diseases have increased. Reports also put unemployment in Iraq at anywhere from 50 percent to 70 percent.

The Bush Administration's response to this growing health and human services crisis is to rip open the Iraqi economy to foreign control. On September 19, 2003, L. Paul Bremer, Administrator of the Coalition Provisional Authority (CPA) in Iraq, signed four Orders which together provide for the full privatization of public enterprises, full ownership rights by foreign firms of Iraqi businesses, full repatriation of foreign profits, the Flat Tax (that darling of the conservative American Right), the opening of Iraq's banks to foreign control, national treatment for foreign companies (which means, for example, that Iraq cannot require that local firms able to do reconstruction work should be hired instead of foreign ones), and (with an earlier order) elimination of nearly all trade barriers. So far, Iraq's oil--at least its extraction and initial processing--is excluded.

Thus, the U.S. corporations that have received billions of tax-payer dollars for reconstruction in Iraq could own every business, do all the work, and send all of their money home. Nothing need be reinvested in Iraq nor specifically designed to aid the Iraqi economy. In addition, the Bremer Orders are illegal under international law. They directly violate the international convention governing the behavior of occupying forces and the Hague regulations of 1907 (the companion to the 1949 Geneva conventions, both ratified by the United States). Indeed, in a leaked memo written on March 26, the British attorney general, Lord Goldsmith, warned Tony Blair that "the imposition of major structural economic reforms [in Iraq] would not be authorized by international law."

Even the U.S. Army's own Law of Land Warfare states that "the occupant does not have the right of sale or unqualified use of [nommilitary] property." As explained by Naomi Klein, "this is pretty straightforward: bombing something does not give you the right to sell it. Yet that is precisely what the Bremer Orders do."

Precious few reporters--such as Naomi Klein and Neil King--have written about the Bremer Orders, and few Americans are aware of the extent to which the Bush Administration is re-making Iraq in its own image while virtually ignoring the pressing needs of the Iraqi people. Sadly, this is the outline of Bush's economic plan for the rest of the world. The Administration's pursuit of privatization of public services and unregulated foreign investment contributed significantly to the collapse of the World Trade Organization (WTO) talks in Cancun in September and the Free Trade Area of the Americas (FTAA) talks in Miami this November. But what the U.S. Trade Representative has failed to achieve through international negotiations, the U.S. Administrator of the Coalition Provisional Authority has succeeded in achieving through military invasion in Iraq.

The good news is that real alternatives exist and are immediately applicable. You will find these discussed at the end of this article.

Bremer Order #39: Foreign Investment

The order on foreign investment in Iraq includes five elements: (1) Privatization of state-owned enterprises; (2) 100 percent 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-flee remittance of all funds associated with the investment, including, but not limited to, profits; and (5) forty-year ownership licenses which have the option of being renewed.

(1) PRIVATIZATION

The preamble to the Order makes clear its aim to move Iraq from "a centrally planned economy to a market economy." The first step is allowing foreign companies to purchase Iraq's state-owned entities--including public services. Thus, everything from water services, electric utilities, schools, hospitals, television and newspapers, to prisons could be privatized under the Order. It lists no requirements that, for example, these resources remain accessible to the general public after privatization is complete.

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'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. Rate increases of 100 percent were the most common, while increases of 300 percent were reported. The citizens rose in protest (at least one seventeen-year-old boy lost his life to Bolivian troops sent into the streets to defend Bechtel's right to privatize). Ultimately, the government relented and cancelled the contract. Bechtel has responded with a $25 million lawsuit against Bolivia for lost profits.

(2) 100 PERCENT FOREIGN OWNERSHIP

In addition to the pubic services listed above, Iraq's factories, farms, telecommunications, transportation systems, publishing, and other businesses could all be completely owned, run, and employed by non-Iraqis under Order 39. The Order states that Iraq cannot restrict access by foreign owners to any sector of the economy except resource extraction. MCI, formerly WorldCom, has already received approximately $20 million to build a wireless phone network in the Baghdad area. As WorldCom, the company was found guilty of cheating investors by overstating its cash flow by nearly $4 billion, and was temporarily banned from receiving federal contracts.

(3) NATIONAL TREATMENT

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." This means that the government of Iraq cannot favor local investors, businesses, companies, or providers over foreign ones. Thus, for example, Iraq cannot require that U.S. companies with billion dollar reconstruction contracts hire local contractors. Nor that qualified Iraqi companies receive contracts over foreign-owned companies. 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. tax-payer 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.

Another example involves one of the first U.S. contracts awarded in Iraq. Stevedoring Services of America (SSA) received a $4.8 million contract to manage the Umm Qasr seaport. However, press reports revealed that the British had identified Iraqis who could perform the same duties. Britain's chief military officer in the Gulf told The Guardian of London that the port should be run by Iraqis as a model for the future reconstruction of the country. The U.S. disagreed, and instead hired SSA, a company that has been called the "most anti-union maritime operation on the West Coast" by union leaders.

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 North American Free Trade Agreement (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. Similarly, the Canadian Corporation Methanex included a national treatment complaint in its suit against the United States after California mandated the removal of MTBE from gasoline sold in the state because it also pollutes ground water and is believed to be a human carcinogen. The case is pending. If the United States loses, we will either have to eliminate the ban or pay Methanex nearly $1 billion for the right to regulate its chemical.

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 at risk.

(4) UNRESTRICTED REPATRIATION OF PROFITS

Order #39 authorizes foreign investors to "transfer abroad without delay all funds associated with [their] investment, including: I) shares or profits and dividends" (this list goes on). Foreign investors can put their money wherever they like and take it out whenever they want to, "without delay." No money needs to be reinvested locally to service the floundering Iraqi economy. No investment needs to be targeted to help specifically damaged regions, communities, or services. All the profits can go home with the foreign owners and they can take out their investments at any time.

The potential costs of this provision on the Iraqi economy are monumental, as evidenced by the impact of the same rules on other economies around the world. Joseph Stiglitz, the former Vice President of the World Bank, among others, has blamed similar rules imposed by the International Monetary Fund as a primary cause of the East Asian financial crisis of 1997-1988 and the financial collapse of Argentina in 2000. The rules eliminate all government regulation on how much foreign investment can enter an economy, where it can be invested, how long or how much money must stay in the economy. Such rules are critical to ensure that foreign investment in Iraq benefits the Iraqi economy, not just the foreign investors.

(5) FORTY YEAR LEASES

Order #39 specifies that Iraq will be locked into its contracts under these rules for forty 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.

Bremer Order #40: Banking

Order #40 turns the banking sector from a state-run to a market-driven system overnight by allowing foreign banks to enter the Iraqi market and to purchase up to 50 percent of an Iraqi bank. A similar provision included in NAFTA paved the way for Citigroup to purchase Mexico's largest commercial bank, Banamex. In Aotearoa/New Zealand, similar provisions 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.

JPMorgan, the second-largest bank in the United States, which was implicated in the Enron scandal, has been awarded a contract to run a consortium of thirteen banks from thirteen countries that will constitute the Trade Bank of Iraq.

Bremer Order #37: Taxes

Order #37 implements a flat tax in Iraq by providing for a marginal income tax rate of 15 percent for both corporations and individuals. While the order is vague, and leaves open the possibility that Iraqis could face different levels of taxation, Grover Norquist, head of Americans for Tax Reform and a Bush administration ally has said, "They told me it's a flat rate and it appears as though it's a flat rate."

A flat rate means that there is just one rate of taxation for everyone--in this case, 15 percent, regardless of how much you earn or how you earn it. Thus, an Iraqi earning 50 cents per hour will pay the same tax rate as another earning $1 billion an hour. Usually, a flat rate will reduce the tax burden on the poorest in the economy, increase the burden on the middle class tremendously, and drastically reduce the taxes paid by the wealthiest in society.

Maybe most disturbing is that the Administration is using Russia as a model for Iraq's tax reforms. In 2001, Russia set a 13 percent flat tax on individual income. While such a shift may have been positive for the wealthiest crime families in Russia, poverty rates soared from only 2 percent of the population living in poverty at the end of the Soviet period, to almost 50 percent, with more than half of Russia's children living below the poverty line after the full market "reforms"--including the new tax code--were put into place.

Bremer Order #12: Trade Liberalization

On June 12, Bremer signed the "Trade Liberalization Policy," suspending until December 31, 2003 "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." Thus, the United States can import and export all the goods it needs into and out of Iraq without paying any duties. There are many exceptions, however, to these rules. This Order is just the beginning. The long-term plan has the United States bringing Iraq's laws into full compliance with WTO obligations and then joining the WTO. The Bush Administration's plans then extend to the entire region. On May 9, President Bush himself announced plans for a U.S.-Middle East Free Trade Area (MEFTA) by 2013. The Middle East, insulated by oil revenue, has not had much need for free trade agreements in the past. But, with the invasion and occupation of Iraq, the Bush Administration demonstrated that it will defy global public opinion and the United Nations to use military force when it deems necessary. Thus, it can now return to the more traditional model of advancing corporate globalization, the free trade agreement.

The Bremer Orders are not merely temporary fixes for a country under occupation: they are designed to permanently revolutionize the Iraqi economy, yanking a state-run system into a model for global corporate capitalism by U.S. flat. Experience with these same policies--and the corporations being used to implement them--demonstrate that the losers will be the people of Iraq (and potentially the rest of the region and the world).

 

What Should Be Done Instead

The Bremer Orders are illegal and immoral. They must be repealed. Even more, however, will need to be done to restore the Iraqi economy. The following alternatives are drawn from more detailed analysis provided by International Occupation Watch Center in Baghdad, the Institute for Policy Studies in Washington, D.C., and the International Forum on Globalization (IFG).

First, the military occupation of Iraq must end, and with its end a UN-commanded multilateral peacekeeping force should return to Iraq. Their mandate should be for a very short and defined period, with the goal of assisting Iraq in reconstruction and overseeing the election of a governing authority.

As belligerent powers who initiated the war, the United States 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 tax-payers. They should be raised from (a) an excess profits tax on corporations benefiting from the war and post-war privatization in Iraq; (b) the Pentagon budget lines currently directed at continuing war in Iraq; and (c) a restored tax on the wealthiest 1 percent of Americans.

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. Contracts should privilege local companies, towards the goal of strengthening and diversifying local production. Labor laws should ensure protection for local workers. Iraqi debts accrued by Saddam Hussein should be forgiven.

Iraq should be encouraged to join the worldwide movement for local sustainability by: moving away from export oriented economies 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. The limited global trade that does take place should occur in a fair trade system supported by a "decorporatized" United Nations Center for Trade in Development with operations that are transparent and democratic, and where trade is viewed as just one among many tools used to help achieve poverty alleviation, economic equality, environmental sustainability, and social justice.

Finally, against the Bremer Orders we must put forward a vision of tikkun.

To get more information, see IFG's new book, Alternatives to Economic Globalization at www.ifg.org or the Tikkun Community's Core Vision at www.tikkun.org; for information on how to participate in anti-occupation and anti-globalization organizing, go to www.actagainstwar.org.

Top 10 U.S. Contractors
in Iraq and Afghanistan

KBR/Haliburton $2.329 million
Bechtel $1.030 million
International American Products $527 million
Perini Corporation $525 million
Contrack International $500 million
Fluor $500 million
Washington Group International $500 million
Research Triangle Institute $466 million
Louis Berger Group $300 million
Creative Assosiates International $217 million

Note: Numbers rounded to nearest million.

Source: Based on contracting data obtained from the Pentagon,
USAID, and other sources by the Center for Public Integrity

Note: Table made from bar graph.



Antonia Juhasz is a project director at the International Forum on Globalization (IFG). Her writings on globalization have appeared in The Cambridge University Review of International Relations Journal, Multinational Monitor and Left Turn.

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