Swans Commentary » swans.com Special Issue on Iraq - February 2, 2004  







"Freeing" Iraq's Economy - For Its Occupiers*

Rania Masri




(Swans - February 2, 2004)   Weeks into the occupation, the US viceroy of Iraq, L. Paul Bremer, stated Iraq is "open for business." (1) Months into the occupation of Iraq, Bremer repeats, "The key message on Iraq since we got here is Iraq is now open to free trade." (2)

And freeing Iraq -- of regulations, tariffs, taxes, and domestic protections -- is the 'freedom' that Bremer and his bosses in the White House are envisioning and imposing on the Iraqi people.


Freeing Iraq...of Domestic Protection

Before the electrical power had been restored to its pre-invasion levels, before the sanitation system had been rehabilitated so that water infested with sewage would not seep into the Tigris and Euphrates rivers and infect the drinking water, Bremer declared Iraq free of tariffs. "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," declared Bremer on June 7, 2003, "are suspended until December 31 2003." The new law, entitled "Trade Liberalization Policy," includes a "temporary 5% tariff for reconstruction" from January 2004 to 2006. Food, medicine, clothing, and books are exceptions from this tariff. Apart from this 5% 'reconstruction' surcharge, Iraq's borders will continue to remain tariff-free. (3)

With such 'free' borders, small domestic industries in Iraq collapsed. A mere month after the removal of tariffs and protections, "textile plants and clothing factories [in Iraq were] devastated by the influx of cheap clothing, much of it made in China," reported The San Francisco Chronicle. "The nation's farmers are also being jolted by the elimination of most agricultural subsidies. ... [Iraq's poultry industry] can't compete against containers full of American Tyson chicken legs, which are shipped to the Middle East at bargain-basement prices." (4)

Thus, with one order, written by a foreign occupier, all tariffs on products entering Iraq were removed. Domestic protections for struggling middle-income industries were erased. No warning. No transition. And no consultation with the affected population.

Free Access to Iraqi Resources

The order by Bremer that sent shockwaves through Iraq and raised the alarm of breaking international law is the infamous Order 39, the Foreign Direct Investment Law. On September 21, 2003, "acknowledging the [US-appointed] Governing Council's desire to bring out significant change to the Iraqi economic system," Bremer allowed new, unrestricted, 100% foreign ownership of all "economic sectors in Iraq," except oil, and allowed 100% removal of their profits out of Iraq "without delay." (5)

Kamil Mahdi, an Iraqi lecturer at the University of Exeter, was in Iraq when this law was announced. "Iraqis were united in opposition to it," he wrote in The Guardian. "The Iraqi Governing Council, sidelined by the Coalition Provisional Authority (CPA), was severely embarrassed, while the business sector was up in arms over the charade of 'consultation.' For most people, the law confirmed Iraq's colonial status." (6) Abbas Alnasrawi, economics professor at the University of Vermont, estimates that "foreign portfolio investment under the prevailing circumstances would lead to capital flight and that the ultimate prize of the neo-conservatives, oil privatization, would be detrimental to Iraq's interests." (7)

Weeks before the Foreign Direct Investment Law was announced, George W. Bush had appointed Thomas Foley director of private sector development in Iraq. (8) Foley is chairman and founder of the NTC Group, a private equity investment company. (Incidentally, Foley is also Bush's friend from his Harvard days in the '70s, and was chairman of Bush's Connecticut campaign finance committee in 2000, when he raised more than $100,000.) As the director of private sector development, this wealthy friend of Mr. Bush is in charge of 194 Iraqi state-owned enterprises, including mining, chemical, cement and tobacco companies. Oil production and two state-owned banks are the only industries that are not under his supervision. By January 2004, Foley is to have drafted a privatization plan for the state-owned businesses.

This plan has been postponed. As reported in The Washington Post: "With goodwill toward Americans ebbing fast, Bremer and his lieutenants have also concluded that it does not make sense to cause new social disruptions or antagonize Iraqis allied with the United States. Selling off state-owned factories would lead to thousands of layoffs, which could prompt labor unrest in a country where 60 percent of the population is already unemployed. ... Asked recently about privatization, [Bremer] said it was an issue 'for a sovereign Iraqi government to address.'" (9)

In other words, Bremer is worried that selling off almost 200 state-owned factories and thus directly increasing unemployment in Iraq would (naturally) fuel the resistance to the occupation. Selling off those factories -- now -- is too drastic a move.

Privatization will continue, though.

When the privatization plan was officially postponed, 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]." (10)

How can selling of state-owned factories be left to a "sovereign Iraqi government to address," but opening up Iraqi resources and transforming Iraq's economic system can proceed "promptly?"

As with the plan to privatize 194 state-owned factors, Order 39 encourages and facilitates the more lucrative foreign investors to compete against the weakened Iraqi capital. As Alnasrawi explains in his article, "The Case Against Privatization," Iraq needs investment that will add to its productive capacity of goods and services, and not one that will replace local ownership with foreign ownership, outbid local capital and thus induce the flight of Iraqi capital out of Iraq, and possibly withhold from investing in new enterprises. (11) Even The Economist magazine recognizes this Order to be a "yard sale." (12)

And this 'yard sale' is illegal. Order 39 is a violation of international law. The 1907 Hague Regulations and 1949 Geneva Conventions forbid the sequestration of sovereign resources and properties through conquest and occupation.

Freedom from Progressive Taxation -- Welcome to the Regressive Flat Tax

On the same day that Bremer opened up Iraqi resources to foreign consumption, he succeeded in imposing on Iraq what two presidential candidates and several senators had failed to impose on the US public: a flat tax. Bremer declared, in Order 37, that "the highest individual and corporate income tax rates for 2004 and subsequent years shall not exceed 15 percent." (13)

Furthermore, he suspended income and property taxes for the year for all who can be tied to the occupation and to the so-called reconstruction efforts: "The Coalition Provisional Authority; Coalition Forces, Forces of countries, their contractors, their sub-contractors, acting in coordination with Coalition Forces, Coalition contractors and sub-contractors... who supply goods directly to or on behalf of the CPA and Coalition Forces, Departments and agencies of the Coalition Forces' governments, and their contractors and sub-contractors that are providing technical, material, financial, and human resource assistance to Iraq; Governments, international organizations, and not-for-profit organizations providing technical, material, financial, and human resource assistance to Iraq; and Members of the above categories to whom goods are consigned or by whom goods are imported for personal use." (14)

In other words, only Iraqis, journalists, and independent businesspeople will pay taxes. Will the suspension of income and property tax be extended, and thus will the occupation and their contracting allies be exempted from even the meager 15 percent tax?

On top of unilaterally imposing a regressive tax, the newly released CPA 2004 Budget for Iraq (15) includes a number of additional flat taxes that likely will be most detrimental to the low-income majority of the Iraqi population. The budget shows an increase in a number of user-pay charges, including "fees from emergency services," "Social Security Rental Income," and "Pharmaceutical Scrip charges," this last being one of the largest at an anticipated 30 billion New Iraqi Dinars. The logic of the CPA? "One of the general principles underpinning this Budget is that Iraqis must contribute to the recovery of their economy." (16)

So, at the same time that domestic protections are slashed, unemployment increases, competition with subsidized foreign industries skyrockets, and regressive flat taxes are imposed, somehow, the average Iraqi must contribute to her economy.

Freedom to Access and Purchase Iraqi Banks

How else to change the foundations of an economy so that foreign investments and foreign capital are encouraged? Influence the banks themselves. And the occupation authorities have directly changed the banking laws in two orders.

The CPA first created the "Trade Bank of Iraq" (Order 20, July 17, 2003). (17) The bank will manage billions of dollars to finance imports and exports. Operating the Trade Bank of Iraq will give banks access to the financial system of Iraq, where foreign bank companies haven't operated since a policy of nationalization in the 1950s and 1960s. And who will operate the Trade Bank? JP Morgan Chase & Co, the second largest US bank by assets, which also happened to give $105,705 to Bush's 2000 campaign, making him the fourth-biggest recipient of Chase political contributions since 1990, will lead a group that includes thirteen banks representing thirteen countries to run the Bank for three years. (18)

Not satisfied with creating an overarching Bank, and giving its control to a US firm, the CPA issued the "Iraq Banking Law," Order 40, on September 24, 2003. "The new banking law permits six foreign banks over the next five years the right to enter the Iraqi market. An unlimited number of banks may purchase up to 50% of an Iraqi bank." (19) Thus immense control has been opened up for foreign capital into the Iraqi economy -- by determining credits, loans, and influencing finances. (20)

What Laws Haven't Been Changed?

Amidst all these metamorphic changes imposed on the Iraqi economy, Bremer issued this statement in his second Public Notice: "To the extent consistent with its obligation to maintain security and civil order, the Coalition Provisional Authority respects Iraqi laws." (21) Changing Iraq's economic structure has nothing to do with maintaining "security and civil order," and everything to do with what one US Army Reserve Colonel referred to as the US national goal of privatizing industry. (22)

What Bremer was talking about in his Public Notice was Iraqi workers' right to organize. In 1987, Saddam Hussein reclassified most Iraqi workers -- those who worked in the huge state enterprises -- as civil servants, and, as such, they were prohibited from forming unions and bargaining. This is the law that Bremer respects, a law that is itself a violation of the Universal Declaration of Human Rights.

Bremer is right to worry about "security and civil order." He is correct in worrying about agitating workers as he strips away their protections, their jobs, and their future security. Already, despite the violation of their civil rights, workers are being organized and are protesting. In October, for example, workers of the Southern Oil Company Trade Unionists staged a two-day strike after Indian and Pakistani laborers were employed by Kuwaiti subcontractors. As reported by Ewa Jasiewicz of the Occupation Watch Center, "They physically threw out the foreign workers and demanded a portion of the 70% unemployed population of Iraq be employed instead." (23)

Bremer intensified the anti-union arsenal when he issued a decree called Public Notice Number One, prohibiting "pronouncements and material that incite civil disorder, rioting or damage to property." (24) "The phrase can easily be interpreted to mean strikes or other organized labor protest," writes labor journalist David Bacon. "Those who violate the decree 'will be subject to immediate detention by Coalition security forces and held as a security internee under the Fourth Geneva Convention of 1949' -- in other words, as a prisoner of war." (25)

Bremer further issued Order 19, limiting protests, assemblies, and marches, and outlawing public gatherings without permission from the CPA. (26) Thus, in effect, outlawing protests for workers' rights, since, naturally, the CPA won't authorize such protests when it is also harassing, arresting, and detaining union leaders (such as the leaders of the growing Union of the Unemployed). (27)


Amidst the attention devoted to the economic transformations, the massive war profiteering and plunder, and the destruction of the economic safety net, another question needs to be asked: what about the safety net in the health care sector? What has happened to the Iraqi health sector, and what will happen to the Iraqi health sector?

The Iraqi health sector was devastated by the 1991 Gulf War and the subsequent draconian US/UN 13-year sanctions. The sanctions led to an extreme dependency on food rations, such that 60% of the Iraqi population depended upon the Oil-for-Food monthly rations to stave off starvation and limit malnutrition. Now, when the Iraqi population is enduring greater insecurity, the CPA wants to transform the Oil-for-Food rationing in a manner that would build "the market structure that promotes private business" and thus would like to replace the rationing with a paltry cash system.

The funds in the Oil-for-Food program have recently all been transferred to the Iraq Development Fund, controlled by the CPA. While Congress has specified that new funding for Iraq should not be used for contracts that are not competitively bid, Iraqi money can be given out on a no-bid basis. At the same time that a Pentagon audit found Halliburton to have over billed US taxpayers $61 million and to have attempted to overbill taxpayers another $67 million, Halliburton was allocated $222 million for additional work. This money came directly from the Iraq Development Fund. (28)

Further, the Ministry of Health has been deemed the first ministry to have to raise its own finances, and thus the imposition of the user-fees such as the "fees from emergency services" and "Pharmaceutical Scrip charges" noted in the CPA Budget. These pay-per-service fees are quite regressive. It is the poor and otherwise socially disadvantaged who suffer two burdens: they are more likely to fall ill or suffer from chronic illness, and they are less able to bear the burden of this flat tax.

Thus, while the Iraq Development Fund's moneys are given out to fraudulent US companies, while the meager net constructed to limit malnutrition -- the Oil-for-Food monthly rations -- are to be tossed aside, malnutrition rates consequently increase, and the burdens on the poor are increased, not lessened.

And, all the while, the infrastructure of the health sector is not improved, let alone reconstructed.

The Iraq Governing Council (IGC) has proposed $1.8 billion for the end of 2004, yet this sum will barely bring Iraq's health sector back to its pre-invasion level. Currently, less than $200 million is allocated to the health sector in Iraq.

Even if the CPA approves the IGC's request for $1.8 billion, it would still be grossly inadequate. The CPA says it will upgrade 240 hospitals in Iraq. Mahatma Davis, CEO of ArabMedicare.com, which is currently conducting a study on the reconstruction efforts in Iraq with a focus on the health sector, wonders how this can be possible. "How can you upgrade 240 hospitals on $1.8B, let alone pay the medical health workers?" (29)

If any work were being done to rehabilitate, reconstruct, or even improve the health care sector, the CPA or the companies themselves would be publicizing the work. "The U.S. will build its largest embassy in Baghdad," explains Davis. "3,000 personnel. 2 to 3 years to build. That project is known. Money was found for that project. Where are the other projects? What are the priorities? Currently, there is zero movement for the health care infrastructure."

Furthermore, the US occupation authorities cut off ties to all companies that had been providing material to the Iraqi health sector, explained Davis, and those channels have not been re-established. No payment guarantees are offered to local and regional companies, although it is those companies that have the relationships and the infrastructure. Payment guarantees and contracts are offered to US companies.

The objective is quite clear: sustainability for US companies, and not the Iraqi economy or the desperate Iraqi health sector.

The US occupying forces have imposed on Iraq an economic program that no sovereign country would ever accept: it virtually guarantees that the Iraqi economy will be taken over by Western (mostly US) multinational corporations and banks. It is a policy that limits democracy, narrowing the public arena so that resources like health, education are controlled by the private sector, by unaccountable, tyrannical corporations.

In the Orwellian doublespeak of the neo-conservatives, "liberation" means conquest and "freedom" means imposing a neo-colonial economic arrangement that is militarily enforced. "Freedom for Iraq" means freedom for the colonizer to dominate, to exploit, to control. We need to continue organizing and building an international movement in solidarity with the people of Iraq, Palestine, Afghanistan and elsewhere, which can rupture this doublespeak, and begin to push back the empire and pursue real "freedom," consisting of self determination for Iraqis and others living under Western military occupation and corporate coercion.

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© Rania Masri 2004. All rights reserved. Please DO NOT steal, scavenge or repost this work on the Web. See our reprint policy.

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*  Many thanks to Matt Holmes for his comments and suggestions, particularly to the conclusion of the article.  (back)

1.  The Chicago Tribune, May 26, 2003.  (back)

2.  The Guardian, December 8, 2003.  (back)

3.  Ibid.  (back)

4.  The San Francisco Chronicle, July 10, 2003.  (back)

5.  http://www.cpa-iraq.org/regulations/20030921_CPAORD39.pdf (last visited: January 9, 2004) September 21, 2003.  (back)

6.  "Privatisation won't make you popular," by Kamil Mahdi, The Guardian, November 26, 2003.  (back)

7.  Ibid.  (back)

8.  "President appoints Greenwich man to Iraq position," Associated Press, August 7, 2003.  (back)

9.  "Threats Force Retreat From Wide-Ranging Plans for Iraq," by Rajiv Chandrasekaran, The Washington Post, December 28, 2003.  (back)

10.  http://www.cpa-iraq.org/regulations/20031221_CPAORD46-39Amend.pdf (last visited: January 9, 2004), December 20, 2003.  (back)

11.  Middle East Economic Survey 46:45, November 10, 2003 - http://www.menafn.com/qn_news_story_s.asp?StoryId=33849 (last visited: January 9, 2004).  (back)

12.  "History in the remaking in Iraq not positive," by John W. Dower, Alameda Times-Star, December 14, 2003 - http://www.timesstar.com/cda/article/print/0,1674,125%257E1511%257E1830638,00.html (last visited: January 9, 2004).  (back)

13.  http://www.cpa-iraq.org/regulations/20030921_CPAORD37.pdf, September 21, 2003 (last visited: January 9, 2004).  (back)

14.  Ibid.  (back)

15.  http://www.cpa-iraq.org/budget/NIDmergedfinal-11Oct.pdf (last visited: January 9, 2004).  (back)

16.  Ibid.  (back)

17.  http://www.cpa-iraq.org/regulations/CPAORD20TradeBank-17July03.pdf (last visited: January 9, 2004), July 17, 2003.  (back)

18.  "JP Morgan Chase chosen to operate banks in Iraq," Bloomberg, August 31, 2003.  (back)

19.  http://www.cpa-iraq.org/regulations/20030924_CPAORD40.pdf (last visited: January 9, 2004), September 24, 2003.  (back)

20.  In addition to foreign influence over the Iraqi economy, Order 40 and Order 39 also influence Iraq's foreign policy. For example, George Wolfe, the acting general counsel at the US Treasury and the former financial administrator of the CPA, has specifically said that all banks are invited to compete, regardless of their country of origin. ("Rebuilding Iraq's Economy: Corruption Barriers Vital, US Official Says," by Jackie Spinner, The Washington Post, November 22, 2003.) Thus, Israel is eligible to purchase 50% of an Iraqi bank, despite Israel's occupation of Arab lands in three Arab countries, and despite Iraq's long-standing rejection of these occupations. Wolfe's comments are not the first. Previously, the U.S. had called on Israeli companies to participate in the 'reconstruction' of Iraq, as reported by the Israeli daily Yediot Aharonot on June 25, 2003. According to the newspaper, US Treasury vice-secretary John Taylor invited Israeli firms 'to work, invest and participate in the various fields' that have been opened up in Iraq. Furthermore, sources at the State Department have said that concluding a peace treaty with Israel is to be 'top of the agenda' for a new Iraqi government. ("Israel seeks pipeline for Iraqi Oil," by Ed Vuillamy, The Guardian, April 20, 2003.) The Iraqi government would also open an oil pipeline through Israel and relinquish support for the Palestinians. ("In the pipeline: More regime change," by Hoomam Peimami, Asia Times, April 4, 2003 and "The pipeline to Haifa: Israeli Minister Dreams of Iraqi Oil" by Akiva Eldar, CounterPunch, April 1, 2003).  (back)

21.  http://www.cpa-iraq.org/regulations/PN2.pdf (last visited: January 9, 2004), Public Notice Regarding Organization in the Workplace, June 6, 2003.  (back)

22.  Statement by Lettie J. Bien, an Army Reserve colonel with the US Southern Command Unit, ("Gales chamber president off to Iraq with SouthCom," by Paula Distefano, Miami Today News, November 27, 2003).  (back)

23.  "Iraqi Workers Throw Out KBR! Reconstruct Their Own Workplaces," by Ewa Jasiewicz, Occupation Watch Center, December 12, 2003.  (back)

24.  http://www.cpa-iraq.org/regulations/PN1.pdf (last visited: January 9, 2004), Public Notice Regarding Public Incitement to Violence and Disorder, June 5, 2003.  (back)

25.  "Umm Qasr -- From National Pride to War Booty," by David Bacon, Special to CorpWatch, December 15, 2003 - http://www.corpwatch.org/issues/PID.jsp?articleid=9408 (last visited: January 9, 2004).  (back)

26.  http://www.cpa-iraq.org/regulations/CPAORD19FrdmAssembly.pdf (last visited: January 9, 2004), Order Number 19, Freedom of Assembly, July 9, 2003.  (back)

27.  On December 5, 2003, US occupation forces arrested union leaders. As reported by David Bacon to the Institute for Public Accuracy, "A convoy of ten Humvees and personnel carriers descended on the old headquarters building of the Transport and Communications Workers union, in Baghdad's central bus station, which has been used since June as the office of the Iraqi Workers Federation of Trade Unions. Twenty soldiers jumped out, stormed into the building, put handcuffs on eight members of the Federation's executive board, and took them into detention."  (back)

28.  "Halliburton gets more business in Iraq," by Sue Pleming, Reuters, December 15, 2003.  (back)

29.  Personal interview, January 5, 2004, Durham, North Carolina.  (back)

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Published February 2, 2004