Talking Points about Iraq Reconstruction Contracts and the Occupation (continued):

Privatization

Q. What laws are being used to push privatization?

A. CPA Order #39 (Foreign Investment) has five key 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-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.

CPA Order #40 (Banking) permits six foreign banks to enter the Iraqi market over the next five years.

A similar provision in NAFTA allowed Citigroup to purchase Mexico's largest bank, Banamex. The liberalization of financial services can lead to dominance by large multinational banks that are indifferent to the needs of small businesses and consumers/homeowners in need of low-cost loans. Local ownership is critical because it facilitates access to credit for all sectors of society.

On December 27, 2003 the Washington Post reported that "plans to privatize state-owned businesses ... have been dropped over the past few months." "The Americans are coming to understand that they cannot change everything they want to change in Iraq," said Adel Abdel-Mehdi, a senior SCIRI (Shiite political party) leader says. "They need to let the Iraqi people decide the big issues." Although Paul Bremer said in June 2003 that "we have to move forward quickly with this effort" (privatizing government-run factories), the Post reported that in December he said it was an issue "for a sovereign Iraqi government to address."

This apparent reversal may be because the rapid privatization of 200 state-owned factories would likely increase unemployment and further fuel the resistance to the occupation. One official from the occupation authority explained that a fast sell-off "was just too risky." One of the major obstacles is resistance from workers who fear being laid off. (Rajiv Chandrasekaran "Attacks Force Retreat From Wide-Ranging Plans for Iraq," WP 12/28/03)

Yet the U.S. plans to continue the privatization process. In December 2003 Bremer issued Order 46, in which he instructed the Ministry of Trade "in direct consultation with the CPA, [to] promptly issue regulations to assist in the implementation of [Foreign Direct Investment Law Order 39]."

Q. Who is actually designing the privatization process?

A $240 million contract has been issued to Bearing Point to develop "a competitive private sector" in Iraq.

BearingPoint's statement of work says: "[T]aking 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."

"What's the upshot of BearingPoint's Plan? Iraq's economy and all of its resources are ripped open to foreign control," says Antonia Juhasz of the International Forum on Globalization. "[BearingPoint's] 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, and the investment rules of the IMF and the WTO."

Ironically, BearingPoint's contract to help Iraq establish a competitive market system was itself granted in a process that was anti-competitive. In fact, BearingPoint actually helped write the specifications for its contract. News reports suggest the specifications knocked its competitors out of the running, according to a memo by U.S. AID. (Seth Borenstein, "Sweetheart deal for Iraq contract, Knight Ridder, 3/27/04).

Q. Is the CPA's decision to privatize Iraq's state-owned companies legal?

A. Probably not. David J. Scheffer, President Clinton's ambassador-at-large for war-crimes issues, argues that the U.S. and Britain, along with their private contractors, could face an onslaught of lawsuits for breaking international law in the way they invaded and occupied Iraq. (George C. Wilson, "Operation Iraqi Lawsuit," The National Journal, November 1, 2003. For Scheffer's essay on the topic, see David J. Scheffer, "Beyond Occupation Law," American Journal of International Law, October 2003.)

The Open Society Institute warns that rapid privatization could result in some of the same problems experienced by Russia, including corruption and oligarchical control of key sectors of the economy. On February 9, the group released a report ("Controlling Iraq's Skies") that exposed a secret deal between the Iraqi Ministry of Transport and members of the powerful Khawwam al Abdul Abbas family, which, according to local news reports, had close ties with Saddam Hussein's regime and were oil smugglers under United Nations sanctions. The deal would result in 75 percent of the country's airlines industry being controlled by one family.

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