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-Caveat Lector-


"Ambitions of Empire: the Bush Administration Economic
Plan for Iraq (and Beyond)."

by Antonia Juhasz*

January 20, 2004

LeftTurn Magazine, No. 12 Feb/Mar 2004
http://www.leftturn.org/Default.aspx

"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 circumstancesŠ
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
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
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.

(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
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
StatesŠ" 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 ( 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).

*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.

=====
Antonia Juhasz Project Director International
Forum on Globalization 1009 General Kennedy Avenue #2
San Francisco, CA 94129 phone: 415-561-3490 fax:
415-561-7651 http://www.ifg.org
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