go back

Free-Market Iraq? Not So Fast

Changes to the Iraqi economy are prompting thorny new questions about

what occupiers should and should not be permitted to do.


[NY Times] January 10, 2004


Free-Market Iraq? Not So Fast




There is no doubt about American intentions for the Iraqi economy. As

Defense Secretary Donald H. Rumsfeld has said, "Market systems will be

favored, not Stalinist command systems."


And so the American-led coalition has fired off a series of new laws

meant to transform the economy. Tariffs were suspended, a new banking

code was adopted, a 15 percent cap was placed on all future taxes, and

the once heavily guarded doors to foreign investment in Iraq were thrown



In a stroke, L. Paul Bremer III, who heads the Coalition Provisional

Authority, wiped out longstanding Iraqi laws that restricted foreigners'

ability to own property and invest in Iraqi businesses. The rule, known

as Order 39, allows foreign investors to own Iraqi companies fully with

no requirements for reinvesting profits back into the country, something

that had previously been restricted by the Iraqi constitution to citizens

of Arab countries.


In addition, the authority announced plans last fall to sell about 150 of

the nearly 200 state-owned enterprises in Iraq, ranging from sulfur

mining and pharmaceutical companies to the Iraqi national airline.


But the wholesale changes are unexpectedly opening up a murky area of

international law, prompting thorny new questions about what occupiers

should and should not be permitted to do. While potential investors have

applauded the new rules for helping rebuild the Iraqi economy, legal

scholars are concerned that the United States may be violating

longstanding international laws governing military occupation.


History provides limited guidance. The United States signed both the

Hague Regulations of 1907 and the Fourth Geneva Convention of 1949 and

has incorporated their mandates regarding occupation into the Army field

manual "The Law of Land Warfare." But foreign armies, whether the

Vietnamese in Cambodia, the Turks in Northern Cyprus or the United States

in Panama and Haiti, have rarely declared themselves to be occupying

forces. After World War II, for example, the Allies claimed the Hague

regulations did not apply because they had sovereign power in Germany and

Japan, which had surrendered. And although most of the world calls

Israel's control of the West Bank and Gaza since 1967 an occupation, the

Israeli government has not accepted that status, although it has said it

will abide by occupation law.


Reconstruction and privatization in Kosovo, for example, have been

bitterly debated. The United Nations authority over Kosovo, set up by the

peace treaty after a war that was unsanctioned by the United Nations,

hesitated to privatize what was in essence seized state property, but it

decided the economic future of Kosovo was too important to wait for a

final peace settlement that would fix Kosovo's legal status.


The government in Belgrade and the much-reduced Serbian community in

Kosovo have argued that such sales are specifically forbidden in the

United Nations resolution setting up the authority itself. This dispute,

though similar, sidesteps questions of occupation law because Kosovo,

unlike Iraq, involves United Nations and NATO forces.


In Iraq the latest pronouncements by the Security Council only add to the

muddle. Resolution 1483, issued in May, explicitly instructs the

occupying powers to follow the Hague Regulations and the Geneva

Convention, but in a strange twist it also suggests that the coalition

should play an active role in administration and reconstruction, which

many scholars say violates those treaties.


The conflict centers on Article 43 of the Hague Regulations, which says

an occupying power must "re-establish and insure, as far as possible,

public order and safety, while respecting, unless absolutely prevented,

the laws in force in the country."


In other words, the occupying power is like a temporary guardian. It is

supposed to restore order and protect the population but still apply the

laws in place when it arrived, unless those laws threaten security or

conflict with other international laws.


"Under the traditional law the local law should be kept unchanged as much

as possible," said Eyal Benvenisti, professor of international law at Tel

Aviv University and author of "The International Law of Occupation"

(Princeton, 1993). Repairing roads, factories and telephone systems,

then, is a legitimate way to get the economy running again. But

transforming a tightly restricted, centrally planned economy into a

free-market one may not be.


In a memo written last March and leaked in May to The New Statesman, the

British magazine, Lord Goldsmith, Prime Minister Tony Blair's top legal

adviser, warned that "the imposition of major structural economic

reforms" might violate international law, unless the Security Council

specifically authorized it.


Officials of the coalition authority insist the Security Council did that

with Resolution 1483. They maintain that wiping out Saddam Hussein's

entire economic system falls within Resolution 1483's instructions "to

promote the welfare of the Iraqi people through the effective

administration of the territory" and assist the "economic reconstruction

and the conditions for sustainable development."


So the authority is pressing ahead with most of the plans for economic

reform in Iraq and promises to have new laws in Iraq governing, among

other things, business ownership, foreign investment, banking, the stock

exchange, trade and taxes by June, when power is to be transferred to the



"We believe the C.P.A. can undertake significant economic measures in

Iraq particularly where those measures support coalition objectives and

the security of coalition forces," said Scott Castle, general counsel to

the coalition. "There's a close nexus between the economic health of Iraq

and the security of Iraq."


Some experts in international law call that a stretch. "The Security

Council cannot require you to comply with occupation law on one hand and

on the other give you authority to run the country in defiance of that

law," said David Scheffer, a professor of international law at Georgetown

University and a former United States ambassador at large for war crimes

issues. He added that "1483 is internally inconsistent."


Order 39 "raises the biggest single question about coalition policy as it

relates to the laws of war," said Adam Roberts, a professor of

international relations at Oxford University and an editor of "Documents

on the Laws of War" (Oxford, 2000). "That order embodies a major change

not just in human rights or the political situation, but in the economic

one. It would appear to go further in a free market direction and in

allowing external economic activity in Iraq than what one would expect

under the provisions of the 1907 Hague law about occupations."


International business lawyers at a conference of investors in London in

October similarly warned that the coalition authority's orders might not

be legal.


Part of the problem is that the old occupation law does not seem to fit

the realities of modern warfare. As Mr. Benvenisti explains in his book

and in a forthcoming article in the Israel Defense Forces law review,

when the Hague regulations were initially drafted, war was understood to

be a legitimate contest between professional armies, not a messy attempt

to remove a tyrannical leader.


"The Hague law reflects the interests of sovereigns to maintain their

basis of power, their property and their institutions," Mr. Benvenisti

said. Instead of wholesale transformation of a nation, then, occupation

was supposed to be a short, transient state of affairs, with minimal

intervention of the occupying authority in the lives of civilians.


But in Iraq the United States' explicit goal is to completely remake

Iraqi institutions and society. "Their objectives far exceed the

constraints of the law," Mr. Scheffer said, noting that occupation laws

were restrictive precisely in order to prevent overzealousness on the

part of an occupying power. "We're squeezing transformation into a very

tight square box called occupation law, and the two really are not a good



In a forthcoming article in the American Journal of International Law, he

sets forth a dozen possible violations by the occupying powers of

international law, including failure to plan for and prevent the looting

of hospitals, museums, schools, power plants, nuclear facilities,

government buildings and other infrastructure; failure to maintain public

order and safety during the early months of the occupation; and excessive

civilian casualties.


In the article Mr. Scheffer explains how individuals could use United

States laws to sue individual coalition officials in American courts.

"This is a rather uncharted field in U.S. jurisprudence," he said in an

interview. "But I would not underestimate how far litigation might go."


Ruth Wedgwood, a professor of international law at Johns Hopkins

University and a member of the Defense Policy Board, which advises the

Pentagon, is not so concerned. In her view the Iraqi laws do not deserve

much deference because they were issued by an authoritarian government.

"If it's not a democratically crafted law, it lacks the same legitimacy,"

she said.


Coalition officials have recently backtracked on privatization, in part

because of the legal concerns. "We recognize that any process for

privatizing state-owned enterprises in Iraq ultimately must be developed,

adopted, supported and implemented by the Iraqi people," Mr. Castle said.


Still, some specialists worry that the radical economic changes that are

moving forward will lack legitimacy in the eyes of Iraqi citizens. Iraqis

may see such wholesale economic transformation as "threatening and

potentially exploitative," said Samer Shehata, professor of Arab politics

at Georgetown University. "I think the sensible answer is to leave

extremely important decisions like the possibility of complete foreign

ownership of firms to a later date, when a legitimate Iraqi government is

elected by the Iraqi people in free and fair elections."



Copyright material is distributed without profit or

payment for research and educational purposes only,

in accordance with Title 17 U.S.C. section 107.

Reference: <http://www.law.cornell.edu/uscode/17/107.shtml>.