|[New York Times]
January 10, 2004
Free-Market Iraq? Not So Fast
By DAPHNE EVIATAR
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 open.
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
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
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
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
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 match."
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
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,"
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."