Global Policy Forum

By Antonia Juhasz

"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 BearingPoint, 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

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 with privatization and international trade at its core. It includes every sector from public services, media, banking, investment, taxes, agriculture and, yes (to a limited degree), 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 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 reconstruction contracts, could own every business, do all of the work and send all of their money home. Nothing need be reinvested in the Iraqi economy, no Iraqi need be hired, no public services need be guaranteed nor the rights of workers protected, and no resources need stay in the country.

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

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 enterprises, full ownership rights by foreign firms of Iraqi businesses, full repatriation of foreign profits, the Flat Tax (that darling of the American Right), the opening of Iraq's banks to foreign control, national treatment for foreign companies (which means, for example, the 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. Iraq's oil-at least its extraction and initial processing-was excluded from these Orders (presumably, the reconstruction of the oil economy is being discussed in less public fora).

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 sulfur 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 privatization plans on the backburner for the time being. The long-term plans, however, are clear. BearingPoint, 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 fades away.

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 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

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 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.

(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 cannot restrict access to 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.

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 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.

(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. 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.

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 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.

(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." 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 behalf of multinational corporations.

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 the next five years the right to enter the Iraqi market. Two or more banks may be "fast tracked," based on their agreement to accelerate the availability of local credit. An unlimited number of banks may purchase up to 50% of an Iraqi bank. Foreign banks may enter Iraq as branches, subsidiaries, representative offices, or through partnerships with Iraqi banks.

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 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 (MEFTA) by 2013.

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 StatesÅ " with the following components:

1) The U.S. will actively support WTO membership for those "peaceful" countries in the region that seek it.
2) The U.S. will offer to negotiate Trade and Investment Framework Agreements (TIFAs) which establish a work program to expand trade and resolve outstanding disputes. The TIFAs will specifically "encourage private sector participation through business councils that drive trade agendas and help us address the specific concerns of business."
3) The U.S. will offer to negotiate BITs it in each country.
4) The U.S. will negotiate comprehensive free trade agreements "which remove all barriers to trade across all sectors - with the aim of expanding the bilateral FTAs into "sub- regional" FTAs by mooring other interested and qualified countries in the safe harbors of existing free trade agreements." 5) These agreements will be melded in to one "historic" regional MEFTA.

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 will 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.

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 economy from collapsing 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.

(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 overseeing election of a governing authority.

(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 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.

(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 directed at continuing war in Iraq.

(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 goal of strengthening and diversifying local production. Labor laws should ensure protection for local workers.

(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).

Antonia Juhasz is a Project Director at the International Forum on Globalization and an organizer with Direct Action to Stop the War in San Francisco. *Portions of this article originally appeared in the January/February 2004 issue of Tikkun Magazine.

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