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
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
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
History provides limited guidance. The
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
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
"We believe the C.P.A. can undertake significant economic measures in
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
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
International business lawyers at a conference of investors in
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
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
Ruth Wedgwood, a professor of international law at
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
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