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by Antonia Juhasz* January 20, 2004 LeftTurn
Magazine, No. 12 Feb/Mar 2004 "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." - Moving the Iraqi Economy from Recovery to Sustainable Growth, Statement of Work, BearingPoint, Inc. February 21, 2003. The reconstruction of Iraq has begun. Not the reconstruction of vital public services such as water, electricity or public security, but rather the radical reconstruction of its entire economy. The quote above is from Bearing Point, Inc. of McLean, VA, recipient of a nearly $250 million contract to "facilitate" the complete economic reconstruction of Iraq. These plans were ready at least one month prior to the invasion, while the contract was awarded on July 18, 2003. The analysis below is based on the draft Statement of Work made available to me in November and confirmed by a BearingPoint spokesperson to be "what we are working from now. Our current plan is unchanged." The full contract has since been made available on the Center for Public Integrity's website http://www.publicintegrity.org/wow/docs/BearingPoint.pdf If
you want to know what the Bush Administration's ultimate plans are for
Iraq (and potentially the entire region), you need look no further than
BearingPoint's Plan. It lays out the full transition of Iraq from a
state- to a market-controlled economy in just 18 months The Plan reads like a chicken-soup of the most extreme corporate globalization policies past and present, from the now roundly- rejected Structural Adjustment Programs of the World Bank/ IMF, to the privatization of public services of the General Agreement on Trade in Services (GATS) and the rest of the WTO's trade policies, the investment rules of the IMF and the WTO, the "competitiveness methodology" of the World Economic Forum, to the creation of an Iraqi Business Roundtable. There is a particularly disturbing emphasis on export trade in the agricultural sector (focusing on luxury crops) given the intense opposition to these same policies at the most recent WTO and FTAA ministerials by those who have suffered under them for decades, including the protest-suicide of South Korean farmer Lee Kyung Hae. What's
the upshot of the BearingPoint Plan? Iraq's economy and all of its resources
are ripped open to foreign control. The U.S. corporations whose executives
participated in the drive for war and that have already reaped billions
of dollars in post war profits and Apparently,
what the U.S. Trade Representative has failed to achieve through international
negotiations at the WTO and the FTAA, the U.S. Administrator of the
Coalition Provisional Authority (CPA) is succeeding in achieving through
military invasion in Iraq. The good The
bad news is that the BearingPoint Plan is already being implemented.
The first significant phase began on September 19, 2003 with the signing
of four Orders by L. Paul Bremer, Administrator of the CPA. These Orders
include the full privatization of public There was at least one Hussein-era law that the U.S. Administrator decided to keep, that which bars public sector workers and those employed by public enterprises from joining or being represented by unions. While there was little coverage of the Orders in the U.S. (Neil King of the Wall Street Journal was the first followed by Naomi Klein), they were immediately controversial in Iraq - particularly the planned mass privatization of state-run industries. When Thomas Foley, director of Private Sector Development for the CPA, announced a list of the first state enterprises to be sold off (most likely derived by BearingPoint) which included cement and fertilizer plants, phosphate and sulphur mines, pharmaceutical factories, and the country's airline, there was immediate unrest. Privatization always brings mass lay-offs in order to decrease cost and increase short-term profit. Approximately 70% of the Iraqi workforce is already unemployed. Those workers with jobs 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 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 resistance and threats of increased
unrest. This at a time when the Bush Administration is anxious to wipe
its hands of the mess in Iraq before the election cycle gets into high
gear. In response, Bremer was forced to put the Implementing the BearingPoint Plan -- Phase 1: THE BREMER ORDERS 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. The primary complaint from the Iraqis actually running the water, electricity, and other infrastructure systems is that while the Bechtel Corporation of San Francisco, CA has seen its reconstruction contracts grow from an initial award of $680 million, to nearly $3 billion today (making it the second highest recipient after Halliburton/KBR with over $7 billion), it is doing assessments and repairing services to U.S. military and other corporations rather than meeting the desperate needs of the majority of Iraqis. In many cases, repairs that could be performed quickly are left undone because they require parts from country's such as France, Russia and Germany that have been banned from reaping Bush's war benefits. The Bush Administration's response to this crisis is the Bremer Orders. Bremer
Order #39: Foreign Investment The order on foreign investment five key
elements: (1) Privatization The Order allows for 100% foreign ownership of 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 Bechtel, one of the top ten water privatization companies in the world. 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 (2)
100% foreign ownership In addition to the public 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. Order #39 states that Iraq In
addition to at least seven other contracts, Science Applications International
Corporation (SAIC) of San Diego, CA, received a $90 million contract
to "restore broadcast media to uncensored operation." According
to the Center for Public Integrity (CPI), SAIC will be (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 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, not by American corporations. 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 involved in a bitter lock-out by the company last year. 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 (5) 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." Nothing needs to be reinvested locally to service the floundering Iraqi economy. Nothing 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 IMF as a primary cause of the East Asian Financial crisis of 1998/1999 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)
40 year leases 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 Bremer
Order #40: Banking Order #40 turns the banking 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 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 Bremer Order #37: Taxes Order #37 implements a flat tax in Iraq by providing 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 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." BearingPoint's Plan makes clear
that this Order is just the beginning - it sets an amazing February
2004 target date for preparation of an application for Iraq to join
the WTO. Of course, Iraq's laws must be fundamentally altered (as detailed
by BearingPoint) in order to meet WTO obligations. The Bush Administration
has out-lined an identical plan for the entire region. On May 9, 2003,
President Bush announced plans for an U.S.-Middle East Free Trade Area In speech on June 23, 2003 in Jordan, US Trade Representative Zoellick described the MEFTA as "a region-wide commitment to open trade with the United States?" with the following components: 1)
The U.S. will actively support WTO membership for those "peaceful"
countries in the region that seek it. 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 The Bremer Orders and the BearingPoint Plan are not merely temporary fixes for a country under occupation: they are designed to permanently revolutionize the Iraq economy, yanking a state-run system into a model for global corporate capitalism by U.S. fiat. Iraq is only the beginning. WHAT
SHOULD BE DONE INSTEAD The Bremer orders are illegal and immoral. They
must be repealed. The BearingPoint Plan must be discussed publicly in
Iraq and the U.S. At most, it should provide for short-term economic
necessitates required to keep the Iraqi (1) The military occupation of Iraq must end. (2) Iraq's foreign debts, accrued by Hussein in the suppression of the people of Iraq, must be forgiven. (3)
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 (4)
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 (5)
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 (6)
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 (7) 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). *Portions of this article originally appeared in the January/February 2004 issue of Tikkun Magazine. Antonia Juhasz is a Project Director at the International Forum on Globalization (IFG) and an organizer with Direct Action to Stop the War in San Francisco. She has written numerous articles and opinion pieces on globalization in publications such as The New York Times, The Cambridge University Review of International Relations Journal and Multinational Monitor. =====
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