November 18, 2003 | Graham

Order 39, Paul Bremer and the CPA

Order 39 of the Coalition Provisional Administration in Iraq has reached cult status. I first became aware of its name courtesy of this post to the OLO email forum when Tristan Ewins provided a link to an article by Naomi Klein of No Logo fame. I vaguely remember hearing a radio report about the proclamation. It included quotes from members of the Iraqi Governing Council supporting the proclamation. That satisfied me.
However, a google search yesterday evening turned up 100s of sites referencing this order with alarm, using almost identical wording because virtually all of them draw upon the Klein article. Yet Klein’s reasoning is dubious and many of her facts wrong.
So what is Order 39? It’s complicated, but essentially it provides for some level of foreign ownership of Iraqi assets and businesses. You can see an analysis of it by Pillsbury Winthrop, a large international US law firm here, while Mena Associates in association with Krauss Amereller Henkenborg has provided this guide.
Major points to note are that while the order allows foreign ownership up to 100% of Iraqi businesses, it bans foreign ownership of “natural resources” and types of “initial processing”; limits foreign ownership of real property to 40 year leasehold; prevents foreign investors from starting to retail without lodging a bond of $100,000 US; forbids discrimination against foreign companies; and allows foreign companies to remit dividends and interest home. As a result, on a continuum between investing in Australia and investing in Cuba it lies much closer to the Cuban end of the axis. What is Klein’s beef?
Her major argument is that the enactment is illegal because she says it is not allowed by the Iraqi constitution. She also claims that it breaches the 1907 Hague Convention. This bout of legalism had me wrinkling my nose. Normally Klein isn’t so pharisaical. So I checked out the constitution. Well, it’s not a real constitution, it’s an “Interim Constitution” and has never been ratified by a popular vote. I guess that’s not necessary in a dictatorship. But if a breach of the constitution by the US or any other body, such as say the UN, makes their actions illegal then we have some problems.
For example, while the constitution makes appropriate noises about freedom of speech, association and religion, it lays out a form of government where to be a member of the executive you have to be a member of the Ba’athist Party (Article 38) This is no doubt part of its object of “Establishing the socialist system on scientific and revolutionary foundations..” and “Realizing the economic Arab unity” (Article 12). The President and the Vice-Presidents also “enjoy full immunity” (Article 40), a right which, while ambiguously worded, Hussein appears to have pushed to the limit. In other words, any occupation which does not enshrine Ba’ath Party rule with a dictatorial President would be illegal under this constitution. So, a logical extension of Klein’s argument is that the coalition ought to go home and re-instate if not the previous regime, one just like it.
In her zeal to get at the US I am sure she overlooked this logic, just as she appears to have overlooked another fundamental fact – the Iraqi Interim Constitution doesn’t actually ban foreign ownership at all! The only mention of foreign ownership is in Article 18 which says “Immobile ownership is prohibited for non-Iraqi, except otherwise mentioned by a law”. “Immobile ownership” appears to be what we call “real property” i.e. “real estate”, and this is the only restriction on foreign ownership in the constitution. Not only is this restriction only limited to immobile property, meaning owning businesses etc. is O.K., but it allows for laws to be passed modifying the constitutional position. Order 39 doesn’t allow foreigners to own immobile property either – it merely gives them the opportunity to enter into a 40 year lease – is therefore well within the letter of these provisions.
Klein appears to be trying hard to imply that the US is actually selling off public assets and pocketing the proceeds but Order 39 cannot possibly be read in that way. It allows foreigners to buy all sorts of businesses, including state owned ones, but doesn’t on its own effect one single sale. In Clause 1 of Section 6 it forbids foreign ownership of natural resources – putting a fairly definitive spike into the arguments of the “No blood for oil” crowd. In this regard the clause is more restrictive than the interim constitution Article 13, which invests ownership of the “National resources and basic means of production” in the people yet doesn’t define what these assets are, and again, doesn’t forbid their sale.
So much for the constitutional problems. In the light of this the Hague convention doesn’t appear to be a problem either. Without going into the details of it, the relevant part of the convention is essentially an agreement that the victor will not pillage the defeated. This was a pretty radical notion at the turn of 19th Century when all of the major European countries had empires. It up-ended the whole economic basis of war which was to increase the wealth of one nation by expropriating the property of another. While there is a US plan to recoup some of the cost of the invasion from a tax on oil revenues, Order 39 does not address that issue, and even if it did, Article 49 of the Hague convention allows an occupying army to levy taxes to pay for the costs of occupation and administration.
Why have so many off-beam notions been given such credibility? Because so many people want to believe the worst of the coalition invasion of Iraq that they are prepared to grasp hold of any justification that looks half-way decent. It is difficult to argue against the occupation on human rights grounds, so they are forced to retreat to legalistic arguments. With the UN effectively endorsing the occupation much of this has been cut out from under them as well, so now we see a retreat into the truly ridiculous, amplified by the words of intellectual fringe dwellers like Klein and the power of the world wide net to propagate uninformed opinion.
My support for the coalition occupation of Iraq is pragmatic. Once the US had massed a couple of hundred thousand troops on Iraq’s borders to go back would have been worse for world peace than to go forward. That is still my position, which is made a little more urgent by the fact that domestic politics in the US limits the length of time that troops can be committed. Klein and others can prattle on about legalisms, but without coercive force, law is nothing. Whether or not we agree that it was legal, coalition action in Iraq proves that the West can bring coercive force to bear effectively. Undermine the coalition efforts and you essentially destroy that proof, making the world a much more dangerous place, one less inclined to abide by the dictates of the rule of law, much less those of interim constitutions.

Posted by Graham at 11:48 am | Comments (7) |
Filed under: Uncategorized


  1. Dear Graham,
    Even if what you say is true, that still does not change the fact that the provisional government does not have a popular mandate, and thus should have waited until it had such a mandate: achieved through democratic elections, and thorough public debate – before undertaking such fundamental and ‘far-reaching’ reform. ‘Provisional’ governments should behave as ‘care-taker’ governments. Without popular mandates, it is only democratic and proper that they limit themselves purely to matters of administration.
    Tristan Ewins

    Comment by Tristan Ewins — November 22, 2003 @ 7:43 pm

  2. So you’d suggest fiddling while the house burns? Isn’t the basis of your opposition to the policy not that it is not the outcome of a democratic process, but that you don’t agree with it per se? And isn’t that really Klein’s position too? Seems to me that a lot of the argument over Iraq isn’t about Iraq at all but about other agendas completely.

    Comment by Graham Young — November 22, 2003 @ 10:38 pm

  3. Dear Graham,
    I do disagree with the policy per se, but my position re: the government not having a popular mandate is as genuine as it is legitimate. It is a genuine and honestly-held argument, not a ‘decoy’ or ‘cover’ argument.

    Comment by Tristan Ewins — November 23, 2003 @ 3:08 pm

  4. If foreign business soaks up Iraqi assets like a sponge, that doesn’t really leave the Iraqis owning much of their own country. In just how many ways will other people (outsiders) be in control of this country’s fate? In a way it resembles a never-ending occupation.

    Comment by Copeland — November 30, 2003 @ 3:28 am

  5. Actually the ability of foreigners to buy Iraqi assets will produce the opposite effect of what you think Copeland. It should actually leave them with much more of the country than they would otherwise have had.
    If Iraqis sell an asset they receive money for it and what do they do with that money? Unless they are immigrating they are most likely to reinvest it in their own country. Assuming Iraqis are as rational as the rest of us they will try to reinvest that money in something to give them an even better return than the asset they have just sold. As they know the country better than the foreigner they are likely to succeed in that endeavour, and the miracle of compounding rates of return will see them outstrip the returns they achieve from the country compared to the overseas investor.
    Countries like Australia would be very much less than they are now without foreign investment. It is a classic case of giving away a bit now to get much more later. Your solution would have the Iraqis relying purely on domestic savings, which is the very slow boat to prosperity. Their need at the moment is a fast boat to prosperity, because if it never embarks the chances are Hussien or a political lookalike will get back in control.

    Comment by Graham Young — November 30, 2003 @ 7:02 am

  6. It’s convenient to cite errors in an article by Naomi Klein and attempt to tear down all who oppose the illegal invasion of Iraq. If her facts are wrong, she should acknowledge errors and make retractions where appopriate but to label millions who disagree with, as Tristan put it, ‘far reaching’ reforms by an occupying power, sounds like the same Naomi Klein tactics you complain of. Arguments that the reforms are in the interest of Iraqis falls contradictorily flat before the simultaneous claim of fostering democratic institutions.
    Only the most naive or nefarious, misunderstand or defend such doublespeak.

    Comment by I. Smith — January 25, 2004 @ 11:36 am

  7. Klein has completely misrepresented the situation, so my comments do not represent nitpicking. What I am pointing out are not minor mistakes and I am not somehow trying to have it both ways. I recognise that the US is running the country and that as a result it needs to take decisions. It is illogical to suggest that they can just sit on their hands until a government is elected some time this year. The changes that they have made are minor, in the country’s interest, have a base of approval within the country and could be reversed by a new government.
    People who don’t like the changes should say they don’t and explain why they are bad, rather than inventing a rationale to do with legality.

    Comment by Graham Young — January 25, 2004 @ 9:35 pm

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