Coalition Provisional Authority - Privatization of Iraq's Economy

Privatization of Iraq's Economy

Prior to US occupation, Iraq had a centrally planned economy. Among other things, it prohibited foreign ownership of Iraqi businesses, ran most large industries as state-owned enterprises, and imposed large tariffs to keep out foreign goods. After the U.S. military came in and took over Iraq, the CPA quickly began issuing many binding orders privatizing Iraq's economy and opening it up to foreign investment. CPA Order 39, entitled "Foreign Investment", provided 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," and that "he amount of foreign participation in newly formed or existing business entities in Iraq shall not be limited...." Additionally, the foreign investor "shall be authorized to... transfer abroad without delay all funds associated with its foreign investment, including shares or profits and dividends...."

By this order, critics assert that the CPA drastically altered Iraq's economy, allowing virtually unlimited and unrestricted foreign investment and placing no limitations on the expatriation of profit. However, these policies were in accord with current international standards on foreign direct investment to which most of the developed world adheres. The order concluded, "Where an international agreement to which Iraq is a party provides for more favorable terms with respect to foreign investors undertaking investment activities in Iraq, the more favorable terms under the international agreement shall apply." According to critics, this order was designed to create as favorable an environment for foreign investors as possible, thereby allowing American and multinational corporations to dominate Iraq's economy. Critics further contend that the controversial policies are fundamentally anti-democratic in that it is not for the United States or any other country or coalition of countries to determine what trade laws Iraqis must live by, and that such rules can only be legitimate if passed initially by an elected Iraqi government free of foreign occupation and domination. Others argue that the rules merely bring Iraq's economic law into conformity with modern norms of international trade, that the CPA should not be under any obligation to run Iraq as a totalitarian state simply because that's what its laws were like before the occupation, and that the previous government and its laws were not democratically legitimate since Saddam Hussein's government was not elected either.

CPA Order 17 granted all foreign contractors operating in Iraq immunity from "Iraqi legal process," effectively granting immunity from any kind of suit, civil or criminal, for actions the contractors engaged in within Iraq. CPA Order 49 provided a tax cut for corporations operating within Iraq. It reduced the rate from a maximum of 40% to a maximum of 15% on income. Corporations working with the CPA were exempted from owing any tax. CPA Order 12, amended by Order 54, suspended all tariffs, thus removing the advantage that domestic Iraqi producers had over foreign producers. However, a 5% "reconstruction levy" on all imported goods was later reimposed to help finance Iraqi-initiated reconstruction projects.

CPA Order 57 provided for the appointment of "Inspectors General" to operate within each Iraqi government ministry, for the purposes of rooting out corruption. These Inspectors General were to be "appointed to a 5-year term by the Administrator ," and were given sweeping powers "to conduct investigations, audits, evaluations, inspections, and other reviews...." Critics contend this is a mechanism for ensuring continuing American influence in Iraqi governance even after the transfer of all sovereignty to the country.

Critics of the CPA argue that these policies were not only rather blatant attempts to shape Iraq's economy in the interests of American (and other) investors and against the interests of Iraqis themselves, but also that they were illegal under international law, because an occupying power is prohibited from rewriting the laws of the occupied country.

Others reply that the privatization of Iraq's economy is necessary to help it rebuild after years of state mismanagement and centrally planned economics, and that market economics does not conflict with the interests of Iraqis or provide undue advantage to American or foreign investors versus Iraqi investors. In addition, if the changes to Iraq's economic laws were illegal, than so would be the Transitional Administrative Law, which serves as Iraq's constitution under the Transitional Government.