Ambitions of Empire, Part 1: Extreme Makeover: The Americanization of Iraq
Antonia Juhasz / International Forum on Globalization
February 14, 2004
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"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," BearingPoint, Inc. February 21, 2003. A planning document written in advance of George W. Bush's announced decision to attack and occupy Iraq. |
SAN FRANCISCO (January 20, 2004) -- 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.
BearingPoint, Inc. of McLean, VA, was the 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."
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-controlled 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."
Globalization at Gunpoint
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. [See A Farmer's Suicide: A Farmer's Message]
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.
BearingPoint's Point Man: L. Paul Bremer
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 US (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 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.
Phase 1: The Bremer Orders
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| The Man in the Middle: L. Paul Bremer is bracketed by Donald Rumsfeld and George W. Bush. |
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.
Privatization of State-owned Resources
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 US 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. 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 17-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.
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. Back in the US, WorldCom 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 -- 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.
'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.
"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.
Unrestricted Repatriation of Profits
Order #39 authorizes foreign investors to "transfer abroad without delay all funds associated with [their] investment, including: "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.
Forty-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.
[Please continue to Part 2]
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