[Senate Prints 112-34]
[From the U.S. Government Publishing Office]
112th Congress } { S. Prt.
2d Session } COMMITTEE PRINT { 112-34
_______________________________________________________________________
IRAQ REPORT: POLITICAL
FRAGMENTATION AND CORRUPTION
STYMIE ECONOMIC GROWTH
AND POLITICAL PROGRESS
__________
A MINORITY STAFF TRIP REPORT
TO THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
One Hundred Twelfth Congress
Second Session
April 30, 2012
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
BARBARA BOXER, California RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania MARCO RUBIO, Florida
JIM WEBB, Virginia JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico MIKE LEE, Utah
William C. Danvers, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
C O N T E N T S
----------
Page
Letter of Transmittal............................................ v
Introduction..................................................... 1
Economic Opportunity............................................. 5
Visa Processes for American Businessmen.......................... 8
Helping U.S. Firms Navigate Iraq................................. 12
The Strategic Framework Agreement................................ 13
Oil Production Growing, But . . ................................. 14
Corruption Continues............................................. 17
A Rosier View From the Iraqi Kurdistan Region.................... 18
OSC-I............................................................
Cost of the Mission May Be Its Death Knell....................... 19
Recommendations.................................................. 21
(iii)
?
LETTER OF TRANSMITTAL
----------
United States Senate,
Committee on Foreign Relations,
Washingston, DC, April 30, 2012.
Dear Colleagues: The departure of the U.S military from
Iraq at the end of 2011 further reduced Iraq's profile for the
media and the public, but the U.S. Mission in Iraq, comprising
Embassy Baghdad, two consulates, and 11 other training sites,
is the largest in the world. It employs almost 2,000 U.S.
Government personnel and 16,000 contractors. The State
Department's Iraq mission in 2011 cost the taxpayer about $6.5
billion.
Iraq itself is far from the stable, reliable ally the
administration had envisioned and American influence, according
to some, is waning swiftly. Iraqi Prime Minister Nouri al-
Maliki projected an air of normalcy claiming at a December
2011, U.S. Chamber of Commerce luncheon, declaring that Iraq is
``open for business.'' Several articles written in major
magazines over the last several months dispute this claim. The
Atlantic published two such articles, entitled ``Doing Business
in Iraq'' and ``Freedom is Bad for Business,'' both by Megan
McArdle. Another entitled ``Under Worse Management'' appeared
more recently in BusinessWeek. The chronic joblessness and
poverty seen in Iraq are problems that only a vibrant private
sector can overcome, and a business friendly Iraq would be a
substantial improvement.
Prime Minister Maliki is also accused of being a pawn of
Iran, a charge U.S. Ambassador to Iraq James Jeffrey disputes.
He sees Mr. Maliki as a master politician, a man who has
friends in Tehran, but also one who wants a relationship with
the U.S. and other Western powers. Such relationships provide
Prime Minister Maliki with an alternative to Iranian influence,
the Ambassador argues, and empower him to say no to his Iranian
friends, particularly when it is not in Iraq's best interests.
To assess Iraq's openness to business, the status of
American influence, and the operational makeup and
effectiveness of the U.S. mission, I requested Senior
Professional Staff Member Patrick Garvey make another trip to
Iraq. This was his sixth trip to Iraq on behalf of the
committee. His first ``visit'' to Iraq was on behalf of the
U.S. Navy in 2003, when he was recalled to active duty service
from our staff.
The following report is derived from a December 2011
STAFFDEL to Iraq and subsequent research and analysis. I hope
you find the report and its recommendations useful as the
Senate works to assess the administration's strategy and U.S.
involvement in Iraq.
Sincerely,
Richard G. Lugar,
Ranking Minority Member.
(v)
IRAQ REPORT: POLITICAL FRAGMENTATION AND CORRUPTION STYMIE ECONOMIC
GROWTH AND POLITICAL PROGRESS
----------
At the direction of Senator Richard G. Lugar, Ranking
Republican Member of the Senate Foreign Relations Committee,
SFRC Minority staff has over the past 3 months conducted an
inquiry into the progress of U.S. efforts in Iraq with
particular attention to Iraq's economic vitality, commercial
prospects, and energy development. The proceeding report is
derived from a December 2011 STAFFDEL to Iraq and subsequent
research and analysis. At the heart of the inquiry is the
assertion, which has been repeatedly propounded by the
Government of Iraq and its Prime Minister, that Iraq is open
for business. Several articles have appeared in major
newsmagazines over the last several months disputing this
claim. The Atlantic published two such articles, entitled
``Doing Business in Iraq'' and ``Freedom is Bad for Business,''
both by Megan McArdle. Another entitled ``Under Worse
Management'' appeared more recently in BusinessWeek.
The December 2011 STAFFDEL coincided with the last weeks of
the nearly 9-year long mission of United States Forces, Iraq
(USF-I). Over these 9 years, the United States military has
been the main guarantor of security and stability in Iraq,
while also serving as the dominant political force in the
country. The military's withdrawal uncorked a new wave of
political wrangling and violence, and it has also left the U.S.
Department of State in charge of a ground structure that more
resembles a military metroplex than an embassy campus.
Ambassador Jim Jeffrey, himself once an Army officer,
understands that the operation is unsustainable and is looking
for ways to shrink the footprint and the budget, which will
have an annual cost of about $6.5 billion.
Staff sought to answer the following questions:
1. Is Iraq really open for business? Does it matter?
2. What does the military's departure mean to Iraq
and U.S. interests?
3. How can State downsize the operational size and or
cost of its mission without sacrificing U.S. national
security objectives?
Introduction
Iraq held a national election in March 2010. While Nouri
al-Maliki was able to form a government 9 months later, the
cabinet's security ministry posts have never been filled and
there has been neither a political ``grand bargain'' between
competing sectarian interests nor evidence that such an
agreement is on the horizon. Such an agreement is necessary to
make up for the lack of institutional underpinnings, checks and
balances, or traditions of democracy. Without a power-sharing
grand bargain that provides partners in the governing coalition
some autonomy within their own ministries, gives some
legitimacy to the opposition, and guarantees governorates and
provinces rights, Iraq will remain dysfunctional. Maliki will
continue to be accused of running roughshod over the rights of
the people, at best, or at worst, of being another dictator.
A grand bargain might not be necessary if the constitution
were not full of gaping loopholes or if the Parliament would
enact the 54 pieces of legislation that the document requires:
only about 15 or 20 of which have been completed. \1\ One of
those requirements is for the creation of a second
parliamentary body, referred to in the constitution as the
Council of Union or Federation Council (Majlis al-Ittihad). It
strains the imagination to believe that any Parliament would
cede power by creating a competing legislative body, so Iraq
may remain a unicameral legislature. On the whole, without the
legislation it requires or a constitutional review and
amendment effort that seemed to show promise in 2007, the
constitution remains what one analyst called ``an empty suit.''
The Erbil Agreements, a collection of power-sharing
agreements reached in November 2010 that paved the way for
government formation, contain the elements of such a political
bargain, but they have been cast aside for a variety of
reasons. The documents are not public. They are probably not
even legal or constitutional. Instead, individual aspirations,
age-old vendettas, longstanding feuds, party politics, and
legal uncertainties continue to prevail in Iraq.
Beyond legal uncertainties, distrust and finger-pointing
are rampant. Minority Sunnis complain that Maliki is Shia
Iran's puppet, that he and his Iranian masters want absolute
power in Iraq, and that all Sunnis are to be rendered powerless
(with the Kurds next). The competing narrative heard in Shia
circles argues that the Sunnis want to take back control and
return a dictator to power who will once again marginalize the
Shia.
The lack of a grand bargain is borne out in the political
fragmentation and corruption that block both economic growth
and political progress. Its absence is seen in even starker
tones now that the U.S. military has departed. The civil war
that was feared imminent in 2006 and 2007 is once again being
talked about. The alliance that elected Maliki Prime Minister
has weakened. There are rumors that the Islamist movement led
by Muqtada al-Sadr may have a credible candidate for Prime
Minister should the votes be assembled for a vote of no-
confidence. Iraqiya, the bloc led by the 2010 popular vote
winner, Ayad Allawi, however, has not grown stronger. Its
membership could not hold together on a recent boycott, and
Allawi has not demonstrated skilled leadership.
Some individuals interviewed by staff suggest that the
December, 2011, indictment of Sunni Vice President Tariq al-
Hashemi, could stimulate a Grand Bargain by forcing the
political parties to take sides and break apart Maliki's
coalition in Parliament with a no-confidence vote. Whether true
or not, the type of charges against Hashemi (that he directed
death squads to carry out political assassinations) could be
lodged against anyone in the governing coalition. According to
Hashemi's advisors, the action came after the Vice President
changed his position on the province of Anbar filing to become
a ``region,'' but his advisors say the legal action is more
personal than anything. Status as a region would be
advantageous for Anbar because under the constitution, regions
are granted greater economic autonomy, while provinces must
seek approval from Baghdad for certain initiatives and
investments.
One close observer suggested that the threat of external
pressures (Syria, Iran, etc.) leading to renewed sectarian
violence in Iraq could also provide impetus for a broad-based
push for reconciliation. That may mean someone other than al-
Maliki has to be at the helm, since he may not be capable of
re-earning Sunnis' trust. This is likely to cause great
consternation among U.S. policymakers and the Embassy, but the
change from dictatorship to democracy is often turbulent, and
rarely follows a linear path. A Spanish diplomat who met with
staff in Jordan offered his country's post-Franco period as an
overlooked historical example. While that conversation centered
on the transition in Egypt, there are similarities with Iraq as
well.
Without a grand bargain, and without the safety net
provided by the U.S. military, the best hope for Iraq and its
citizens may actually be that the economy does not develop too
quickly. In even the best case, significant oil production
growth is more than 5 years off and the government of Iraq will
need outside assistance to develop the sector's full capacity.
Slow growth will force the government into making careful
choices in its budget that could lead to a more open economy
and a more efficient public sector. The government cannot
afford generous handouts to placate the citizenry. For example,
the Iraqis are trying to figure out how to wean the country off
of the legacy monthly food-ration for which all Iraqis are
eligible and which costs more than $7 billion annually.
Furthermore, in terms of Iraq's broader (non-oil) economic
development, it is an underdeveloped resource-rich economy.
International companies are uniquely positioned to drive change
and bring transparency into the economic lifeblood of Iraq. But
many international firms will be skeptical of involving
themselves in an Iraq venture as long as the Iraqi narrative is
one of uncertainty, corruption, danger, and legal ambiguity.
Given that Iraq's fate will be decided in large part by the
economic growth trajectory it realizes, the top priority for
the U.S. Embassy should, in the wake of the military's
departure, shift to helping American companies do business in
Iraq. Although staff found this to be the case to some extent,
a great deal of work needs to be done by both the Embassy and
the companies themselves. The Government of Iraq has an even
more important role to play in this regard. While PM Maliki and
other government officials declare that Iraq is open for
business, staff found the reality to be quite different.
Outside the oil sector, one finds a business community
comprised of the lucky, the shady, the very adventurous, and
companies who have FMF or FMS deals.
Iraq has many improvements to boast, but it might be
another 10 years before it is a thriving economy or functioning
democracy capable of acting as a stable and reliable ally. The
time has passed when the United States could seek to alter
Iraq's political realities through military means or propound
text for legislation. The administration must provide greater
leadership and a strategic vision that keeps this in mind and
can adjust to realities. It should expand exchanges under the
oft-mentioned Strategic Framework Agreement (SFA) that was
signed alongside the now expired Status of Forces Agreement.
Vice President Biden highlighted the SFA in his early December
visit: ``The relationship will be guided by our strategic
framework agreement which outlines partnerships across a range
of strategic issues, including energy, trade, the rule of law,
diplomacy, agriculture, education and many others.'' The
administration must continue to assign its most skilled and
experienced Arabist diplomats to ensure Iraq's complex problems
are considered in the broadest possible regional terms.
Among Iraqis, there is a great deal of apprehension about
what will happen next. On one hand the troops have been out of
the cities and the Iraqis have been providing their own basic
security since 2009. Overall violence is down markedly. Yet
there is a growing fear that as Iran becomes further isolated,
it will use the relationships and terrorist groups (most
prominently Asaib al-Haq (AAH)) it has cultivated in Iraq to
drive a wedge deeper into the Sunni-Shia relationship, to
embarrass Iraq in the eyes of its nascent western allies, and
to scare off foreign investors. Iran's proxies could also
attack U.S. activities and further reduce their effectiveness.
For example, movement for the STAFFDEL was constrained by a
``credible kidnapping threat'' coming from the ``friends'' of
Lebanese Hezbollah member, Ali Musa Daqduq, the last prisoner
held by the U.S. who was released in late December.
The most apprehensive Iraqis include those who have worked
for the United States, the hundreds of thousands of refugees in
the region, and the internally displaced. These Iraqis were
scared before but feel more vulnerable now. Since the spring of
2011, there has been a drastic decrease in refugee and SIV
(special immigrant visa) admissions to the United States. New
``interagency check'' processes put into place by the
administration have led to a worldwide drop in refugee
admissions from a rate of 73-74,000 per year to a total of
56,424 (9,388 Iraqis) for the current fiscal year. The check
system is cumbersome, lengthy, and very costly.
According to the refugee coordinator in Embassy Baghdad,
the refugee program has a 2-year wait before an initial
interview can even be conducted. There is currently a 6-month
(almost 13,000 case) backlog awaiting a Security Advisory
Opinion.\2\ Even worse, most who have applied and been
interviewed think they may get approved and thus afforded the
opportunity to start their lives over the United States.
Despite this common perception, staff learned that while the
overall rejection rate of the security check may only be 25
percent, 99 percent of those cases have not received a
rejection letter. In other words, applicants that the system
has rejected are not being told they will not be admitted to
the United States. In Jordan, staff met with several such
families who were in various states of limbo and desperation
awaiting the outcome of these processes.
In terms of Iraqi politics, staff heard predictable Sunni
resentment toward Maliki, who they feel has shown a heavy hand
in dealing with internal security threats but has no political
backbone when it comes to facing down Iranian malfeasance or
even dissent among his own parliamentary bloc. Staff also heard
substantial apprehension on the part of the Kurds, who worried
that they will be again alone to face a Baghdad strongman (whom
the United States is arming and training). Tensions along the
disputed internal boundaries and around Kirkuk continue. This
state of affairs was made fully apparent when the U.S. turnover
of Hurriyah airbase near Kirkuk to Iraqi control nearly led to
armed conflict in November.
The U.S. military withdrawal gives the Americans little
ability to protect Maliki against a coup attempt or to continue
counterterrorism operations in our own interests. However, as
insurance against more involved plots against the Iraqi
Government, we retain significant military assets in the
Arabian Gulf, which include the U.S. Fifth Fleet and a 1.5
carrier presence,\3\ a heavy brigade and some 13,500 troops in
Kuwait, and significant air forces in Qatar. This presence will
continue for the foreseeable future.
American diplomats judge that Prime Minister Maliki is
under competing political pressures yet is a master navigator
of political winds. They feel he is competent in holding his
own and backing down the Iranians when necessary, and he does
this particularly by building and maintaining a visible
strategic relationship with the United States and the West.
When asked about Maliki's continued support for the Assad
regime in Syria, for example, Ambassador Jeffrey did not
condemn the Prime Minister, nor see any great gain in Maliki's
calling for an end to Assad. It would make no difference to
Assad's longevity and would only hurt what Maliki views is an
essential relationship with Iran. Plus, Maliki spent much of
his exile in Syria.
Economic Opportunity
On December 13, 2011, Prime Minister Maliki spoke at the
U.S. Chamber of Commerce in Washington, DC. Iraq, he said,
welcomes American companies, which risk losing out if they fail
to get more aggressive. But Maliki failed to drive the pitch
home. He made no promises on the merits about a level playing
field, accountability or transparency, or reducing bureaucratic
impediments. Instead he underlined that he and his Iraqi
Government colleagues will be glad to help American companies.
Staff heard this in Baghdad from the Chairman of the National
Investment Council, Dr. Sami Al Araji, a prominent Sadrist
politician, who said he could sign visas, would take care of
lodging, cars, and protection for anyone who wanted to come to
Iraq to ``look around.'' Targeted, logistical assistance of
this sort is of little utility without concomitant efforts by
the Government of Iraq to address interrelated economic,
regulatory, infrastructural, and political difficulties that
continue to hinder American investment.
On the positive side, Iraq is exporting about a half
million more barrels per day than a year ago, and exports are
expected to increase by that quantity again next year. Positive
developments have also occurred with regard to Iraq's budget.
The 2012 budget was approved by the Parliament and received the
IMF seal of approval. It contains many welcome provisions from
the economic standpoint. Outside of these two issues, however,
success is much harder to see.
Doing business in Iraq remains extremely challenging.
Capital is hard to acquire. The government is slow in paying
its bills. The law remains complex and at odds with itself.
Public utilities and services are not up to standards.
Investors are scarce and a sense prevails among them that the
Iraqi Government is not friendly toward business. ``Investors
come to make money, not to make charity,'' said the Deputy
Minister of Finance, who had a good grasp on Iraq's faults, but
like many in government, feels powerless to do anything about
it.\4\ For example, ExxonMobil, made a deal in the North
because they got better terms, Dr. Al Jaberi said: ``Who can
blame them?''
American firms who were interviewed by staff offered a
collective shrug, not wanting to lay blame, but they are
noticeably frustrated with the lack of progress on tenders that
are never considered, nor offered. For example ITT Exelis,
which has been working for many years on foreign military
sales, has for 3 years been involved in a bid to provide a
military communications system on a direct commercial sales
basis to the Iraqis, but it ``never comes to fruition despite
best prices and interoperable equipment--same as delivered
through FMS.'' \5\
Dr. Al Jaberi expressed gratitude for what the Americans
had done for his country and said his government should be
ashamed for how the Americans are being treated, especially in
light of what, in his view, is the great gratitude the Kuwaitis
continue to show the Americans. In this regard he said, you
have ``the U.S. begging us to [let them] stay.''
If Iraq is really open for business, the government must
get out of the way rather than intervene. In an open and
competitive system, assistance should only be needed rarely.
``Doing Business 2012,'' an annual World Bank report that
analyzes quantitative indicators on business regulation and the
protection of property rights across 183 economies and over
time, ranked Iraq at No. 164, down five slots from its 2011
survey. Singapore ranks first, the U.S. fourth, while
Afghanistan at No. 160 ranks ahead of Iraq. According to the
report, Iraq has instituted no reforms the World Bank would
recommend, but it did institute a reform that made it more
difficult to do business. ``In Iraq starting a business became
more expensive because of an increase in the cost to obtain a
name reservation certificate and in the cost for lawyers to
draft articles of association,'' the World Bank said.\6\
With the multitude of hurdles detailed by the World Bank
(and Ms. McCardle in`` The Atlantic''), it is no wonder that
Iraqis continue to prefer government jobs to opportunities in
the private sector. This general finding was reaffirmed by the
International Rescue Committee, which works on behalf of the
U.S. Government in assisting internally displaced persons
(IDPs) in Iraq. IRC conducted a ``Livelihoods Survey''
reviewing the ``labour market and the relevant openings to
enhance livelihood opportunities for youth who are currently
living in IDP camps in Baghdad.'' The study, published in May
2011, conducted focus-group interviews with about 110 youths
(15-24 year olds) from urban slums. About 65 percent of the
males are doing some work, while only 2 percent of females are
engaged in any income-generating work. Most lack the skills to
create opportunities or even engage in the economy and
therefore see few prospects for themselves. Further, ``many
youth perceive government employment as an ideal work
environment due to the level of job security and provision of
benefits.'' \7\ Yet in reality they do not have the education
or even physical mobility to get to a government job, so their
best option is self-employment, microenterprise, or day labor
work. Efforts such as these represent a slow and tedious path
out of the slums, particularly in the absence of focused
policies or practices by the Government of Iraq.
But the lack of jobs is not only a problem for the youth in
Baghdad's squatter slums. Approximately 2.0 to 2.5 million
young people in Iraq are unemployed or only work part time and
want to work more. A study done for USAID in 2011 reports that
unemployment among the entire population, including what they
refer to as ``disguised unemployment,'' might be as high as 38
percent. Additionally, as USAID has documented, ``each year,
there are 450,000 [more] young people seeking work.'' \8\ But
with Iraq's public sector more than doubling in size since 2005
and providing perhaps half of all jobs in Iraq (60 percent of
all jobs in the Kurdish Region), the call for policies that
facilitate private sector job creation should be loud and
clear.
Staff did encounter individuals and organizations that
displayed a commitment to changing Iraq's commercial legal
framework for the better. Among the most pragmatic are the
entire staff of the Commercial Law Development Program (CLDP),
who told staff, ``Iraq doesn't know how to transition to a
market-based system.'' CLDP, a small division of the U.S.
Department of Commerce, helps developing and post-conflict
countries implement commercial legal reforms, and is showing
them how in an understated, measured, and cost-effective
fashion.\9\ CLDP's current mandate is twofold: ``to build
capacity conducive to the modernization of Iraq's economic
infrastructure'' and to ``create a legal environment conducive
to economic diversification and private sector growth.'' Among
CLDP's challenges in 2010 was to build capacity for the
Ministry of Oil's Petroleum Contracting and Licensing
Directorate (PCLD). The PCLD lacked the knowledge and skills it
needed to negotiate on an equal footing with the international
oil companies. CLDP designed workshops to explain the legal,
economic, and financial intricacies of oil and gas and provided
3 weeks of consultations in the U.S. that culminated in a 2-day
simulated negotiation with seven U.S. lawyers. In order to help
overcome some of the distrust of foreign participation in the
Iraqi oil market, which has hamstrung the Ministry of Oil, CLDP
also created some financial models for the Ministry of Oil to
use in educating members of the Council of Representatives
about the type of contract being used in the bid rounds.
CLDP has achieved modest success because of its realistic,
fact-based appraisal that Iraq's challenging history can be
overcome neither quickly nor forcefully. There are many
bureaucratic and human obstacles as well as the legal ones. But
like the arcane business practices analyzed by the World Bank,
these broader issues must be tackled because they slow progress
and discourage honest private companies from pursuing
opportunities, which is the most sustainable path to job
creation.
An additional challenge to economic growth, and a drain on
the federal budget, which staff discussed with Thamer Ghadban,
Chairman of the Prime Minister's Advisory Council, are state-
owned enterprises (SOEs). SOE employees are paid out of the
budget. They receive subsidized means of production (which
often include free fuel, petroleum byproducts, and
electricity). Ghadban stated that subsidies and government-paid
salaries are being phased out. To facilitate this phase-out,
the budget is going to allow ministries to pay salaries to
laid-off employees for 1 year. Ghadban said this provision will
end in a year, after which there will be no more salary
subsidies or free electricity for SOEs.
Ghadban's claims were mostly substantiated in analyzing the
budget itself, but there were inconsistencies, and some of this
may be a little bit of a shell game. For example Article 31
states that self-financed public companies should not be funded
in the federal budget, but that those companies can obtain
loans from the state-owned banks. Meanwhile, Article 23 has a
provision that allows the Minister of Finance to settle loans
given to the SOEs, implicitly supporting the SOEs. So, instead
of the current practice of subsidies, the state-owned companies
can get state loans, which can then be written off. As for
salary phaseouts, Article 21 contains provisions for people who
have been integrated from the militias, suggesting they should
not be phased out, and it also states that vacated positions
should be deleted and not refilled. Finally, Article 11
provides budget assistance to allow ministries to pay for one-
half of the salaries for 3 years (not one as Ghadban stated)
for personnel transferred to the private sector.
Visa Processes for American Businessmen
Any country that professes to encourage business must start
by making its processes transparent, predictable, and easy to
follow. That is far from the case in Iraq. One simple step
toward opening Iraq for business would be to standardize its
visa processes. Over the past several months, the procedure for
getting a visa for Iraq has become increasingly laborious.
According to one U.S. senior executive, ``Before December 15,
getting a visa for Iraq took 4-5 days. Now you never know.''
Iraqi officials say their system is faster than that of the
United States. Implying that there might be some tit-for-tat
for poor treatment given to Iraqi travelers, they stated that
it must be a two-way street. A personal example: unlike prior
trips, where staff were given a ``multiple entry'' visa good
for an entire year, for the December 2011 visit, staff were
given a ``single entry'' visa valid for 3 months. Businessmen
and journalists state the 3-month single-entry visa has become
standard for them as well. As a result, many private companies
who work for the U.S. mission have a difficult time managing
leave or rotation cycles for their employees because they must
reapply for visas each time they enter or leave the country.
Table 1.1 was compiled using publicly available information
to compare the requirements for Americans seeking to visit
foreign countries for the preliminary activities necessary to
determine whether they should expand their business interests
abroad. Such activities include, but are not limited to,
participating in fact-finding missions, conducting site visits,
and attending meetings. Iraq ranks last in this comparison,
scoring 45 out of a possible 100 points. Countries who scored
100 required no visa for Americans traveling for basic
business.
The United States longstanding European allies are
prominent among those who have opened their borders to American
private investment. Other countries with widely divergent
geographical dispositions, historical relationships with the
United States, and levels of economic development have welcomed
American businesspeople with open arms. Included among these
countries are African partners Botswana, Kenya, Tanzania, and
South Africa. Botswana, in particular, maintains rules and
regulations fairly similar to those of our European allies.
Additionally, several of our partners in East Asia have low
barriers to business travelers. While the Philippines requires
Americans traveling for purposes other than tourism to obtain a
visa prior to departure, processing times are short and visas
themselves are comparatively inexpensive.
In South America, longstanding partners Argentina and Chile
maintain well-reasoned regulations highly conducive to those
carrying out exploratory processes that are a necessary
precursor for investment. In spite of the fact that another
friend in the region, Brazil, expressed concerns about security
measures taken at American points of entry following 9/11 and
implemented retaliatory policies, the country has remained open
to Americans considering the expansion of their business
interests there.
Iraq's own policies are far more prohibitive than not only
those of the countries of all aforementioned regions but also
many of its neighbors in the gulf. Iraq maintains an
unpredictable regulations regarding visa processing times,
costs, and legal duration; burdensome requirements on all
private American citizens seeking to remain in-country longer
than 10 days; inconvenient mandated exit processes; and
unpredictable exit fees. In contrast, the United Arab Emirates'
regulations are somewhat unpredictable and complex, but the
government maintains reasonable entrance and exit policies.
Bahrain and Kuwait continue to leverage their economic
potential by managing regulations that are among the most
welcoming to potential American investors.
Table 1.1 offers insight only on measures governing the
admission of Americans traveling with the intent of finding
markets for their products in Iraq. It does not touch on far
more complex regulations regarding foreign direct investment.
However, liberalizing such policies is a prerequisite to make
the country's overall business climate more amenable to foreign
investment. Iraq has a unique, complicated history with the
United States that cannot be ignored, but so do many nations
where Americans conduct business, often despite truly odd--but
consistent--visa requirements. American businessmen interviewed
are able to deal with reasonable and well-codified regulations.
Their frustration stems from the lack of consistency with which
they are applied and the constant uncertainty.
Ambassador Jeffrey said that without a status of forces
agreement, every one of his employees must now have a visa to
enter and leave Iraq. All contractors, subcontractors, NGO
employees, and businessmen must get them as well. In Iraq, visa
issuance falls under the purview of the Ministry of Interior.
Interior is one of the three security ministry posts that have
been filled for well more than a year by acting ministers. In
the case of Interior, the de facto minister is Prime Minister
Maliki himself. Staff learned on this trip that at MOI Maliki
has been rewarding Daawa loyalists and made cuts to staff that
have negatively impacted the effectiveness of the institution.
Obtaining a visa is not the only slow process. One Western
journalist whom staff interviewed stated he has been attempting
to get a residency permit, but it ``has been pending for more
than a year. It has been sitting on the desk of the Acting
Minister of Interior (Adnan al-Asadi) awaiting his signature.''
Like many, his organization has figured out a workaround for
the visa process, going through the foreign ministry, or he
said, ``Bribes will save you some of this hassle.''
The journalist said that the HIV/AIDS test is a requirement
for the visa, which is single entry and valid for 3 months.
Then, he said, ``upon arrival you have 10 days to register with
the authorities who may or may not demand another HIV test.
They put a sticker on your passport that takes a whole page.
Then you need permission to leave Iraq and also maybe another
HIV test. This exit authorization also earns you a sticker that
takes up another page of your passport. So for a single visit
to Iraq expect the visa sticker at the Embassy, the arrival
sticker and the departure sticker.''
TABLE 1.1 COMPARING VISA PROCESSES FOR AMERICAN BUSINESSMEN ABROAD \10\
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Business visa Exit procedures Entrance or Exit
Country Visa for AMCIT Visa available at req'd? (duration Cost of business Visa processing Legal duration of Other requirements prior to reaching fee apart from Score \11\
entry? POE? of validity) visa? time? visa-free stay? for entry airport req'd? ticket cost?
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Argentina....................... No................ N/A............... No................ N/A............... N/A............... 60-180 days....... None.............. None.............. $140.00 entrance.. 95
Bahrain......................... Yes............... Yes............... Yes (14-28 days).. $20-$228.......... 2 weeks........... N/A............... No HIV/AIDS test, None.............. No................ 97
but those found
to have HIV/AIDS
refused entry.
Botswana........................ No................ N/A............... No................ N/A............... N/A............... <90 days/yr....... None.............. None.............. None.............. 100
Brazil.......................... Yes............... No................ Yes (90 days-10 $140-$160......... 10-15 days........ N/A............... None.............. None.............. None.............. 90
years depending
on work).
Chile........................... No................ N/A............... No................ N/A............... N/A............... 180 days.......... None.............. None.............. $140 entrance fee. 95
France.......................... No................ N/A............... No................ N/A............... N/A............... 90 days........... None.............. None.............. None.............. 100
Germany......................... No................ N/A............... No................ N/A............... N/A............... 90 days........... None.............. None.............. None.............. 100
Iraq............................ Yes............... No................ Travelers for Determined on base Determined on case N/A............... Must obtain Must obtain exist $20-$200 45
business apply by case basis. by case basis. arrival sticker, stamp at a (dependent on
for standard visa residency stamp, designated length of stay,
(validity and submit blood Residency Office type of visa,
determined case sample within ten prior to other factors.
by case). days of arrival.. departure.
Kenya........................... Yes............... Yes............... Yes (six months).. $100.00........... Two weeks......... None.............. None.............. None.............. No................ 97
Kuwait.......................... Yes............... Yes............... Yes (business $175.00........... Visas issued at N/A............... None.............. None.............. $15.00 entrance... 92
travelers use all ports of
standard entry entry.
visa).
Philippines..................... Tourism only...... No................ Yes (3-12 months). $30.00-$90.00 One week.......... N/A............... None.............. None.............. Exit fee req'd.... 85
(depending on
stay length).
Poland.......................... No................ N/A............... No................ N/A............... N/A............... 90 days........... None.............. None.............. None.............. 100
South Africa.................... No................ N/A............... No................ N/A............... N/A............... 90 days........... None.............. None.............. None.............. 100
Tanzania........................ Yes............... Only in case of Yes (one year).... Determined on case Five business days N/A............... None.............. None.............. None.............. 87
emergency. by case basis.
UAE............................. Yes............... Personal travel Yes (determined on Determined on case Determined on case N/A............... None.............. None.............. None.............. 60
only. case by case by case basis. by case basis.
basis).
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Helping U.S. Firms Navigate Iraq
Given that Iraq's fate will be decided in large part by the
economic growth trajectory it realizes, the top priority for
the U.S. Embassy should be helping American companies do
business in Iraq. Staff found this to be the case to some
extent, but this is a long way from being a good news story. A
great deal of work lays ahead for Embassy Baghdad and the
companies themselves.
Many U.S. companies are doing big business in Iraq, but
they all have challenges. Large firms such as Fluor, GE,
Honeywell, Navistar, Northrop-Grumman, Rapiscan, and AECOM have
pursued interests in Iraq. Honeywell, for example, has been
very aggressive and has two offices in country, one in Basra
and another in Baghdad. They will be opening a training center
this year in Basra with 13 employees. Orders for their product
are rising too, reaching about $100 million in orders for all
their businesses combined, and they are considering expanding
to work in the Kurdish Region. Smaller U.S. firms such as
Altergy, Henry F. Teichmann, Inc., and Puralytics have been
approached by some Iraqi State-owned enterprises that have
interest in their work. Other U.S. firms have been working for
the U.S. mission in various forms, including working with the
Office of Security Cooperation for Iraq (OSC-I), whereas others
have developed direct commercial sales with the Iraqi
Government.
Honeywell gives great credit to both DOD and State.
Honeywell spent 16 months in a DOD incubator while it tried to
put together a standalone operation (one of the only positive
stories staff have heard about the Task Force for Business
Stability Operations). In particular, they credit Embassy
Baghdad and commercial officers for their success, naming
Commercial Attache Dao Le as ``helpful and passionate'' and
willing to ``go out of his way to help.''
Similar compliments about the helpful nature of the Embassy
team have come from the Indiana firm, Ameriqual, which was
solicited to make an offer on a yet to be seen tender from the
Ministry of Trade to replace the government distributed monthly
ration of food commodities with a commercially run operation
featuring a single prepackaged kit. This would be a huge
operation and potentially lucrative commercial enterprise, but
even for huge company like Ameriqual, it would require a great
deal of capital to produce, ship, and distribute food kits to
every Iraqi family on a monthly basis. Ameriqual jumped through
a great many hoops, sending senior officials to Baghdad to meet
with the Minister, providing figures and estimates, etc. There
was a great deal of interest on the part of the GOI, which sent
a commercial officer to Indiana to tour the production
facility. But in the end, no tender was issued and no bid was
considered.
The U.S. and Foreign Commercial Service (FCS) is the trade
promotion arm of the U.S. Government and part of the Department
of Commerce. Its main objectives are promoting U.S. exports,
encouraging foreign investment into the U.S., and protecting
U.S. business interests. FCS has two staff in Baghdad and
another in Erbil. They have no locally engaged staff (LES) who
understand the Iraqi business climate. FCS officers, like most
Embassy staff, serve on 1-year assignments. U.S. Embassy
Kuwait, by contrast, has one FCS officer and four LES. American
companies (and American brands) are all over Kuwait.
Until 2005, five LES were assigned to work for the FCS in
Iraq, after which they were left with the one LES staff in
Erbil. Locally engaged staff underwent quite an ordeal in those
days. Fearing for their safety, many left the country while
others simply found traveling into the Embassy too dangerous
and quit. (And, according to today's staff, `` . . . in a
couple of cases KIA.'') After that, FCS eliminated the LES
slots and managed the workload by hiring two bilingual/
bicultural advisors under a DOD contract. That ended in the
spring of 2011, and another interim solution, a 3161 \12\
employee, is onboard, and two Iraq cultural advisors (ICAs)
were under contract with State through April, 2012. Recently,
the Department of Commerce and ITA has approved the hiring of
one LES in Baghdad. To his credit, the Commercial Counselor
recognizes he is shorthanded and is trying to work around it.
He said he will `` . . . use fees we charge companies for new
matchmaking and due diligence services we now offer to pay for
at least one of the ICAs on contract . . . to ensure that we
can offer U.S. companies the services they need in order to do
business here.''
The Deputy Chief of Mission for Economic Affairs,
Ambassador Peter Bodde, has also created a task force to help
work around this handicap, staffing it with additional economic
officers and 3,161 hires. Nevertheless, staff believes the
Department of Commerce must put more effort into Iraq,
particularly by hiring more local staff, especially for the FCS
mission.
The Strategic Framework Agreement
Although the Status of Forces Agreement (SOFA) negotiated
by the Bush administration in 2008 has expired, a second
agreement, called the Strategic Framework Agreement (SFA),
which was negotiated and signed at the same time, provides a
framework for activities to ignite Iraq's economic engine.\13\
This agreement has been much talked about inside State
Department and Embassy circles and mentioned in briefings to
Hill staff, but it can claim few results. Nevertheless, Section
V of the SFA entitled, ``Economic and Energy Cooperation''
should be looked at carefully and some big ideas should be
generated whose goal would be to get Iraq ``open for
business.''
One of the biggest gaps in expertise in Iraq is in project
development, financing, and management. One idea discussed with
staff by the Commercial Attache, and proposed last summer by
the Embassy's Economic Minister with inputs from the Foreign
Commercial Service, would be modeled on the U.S.-Saudi Joint
Commission on Economic Cooperation (JECOR) that ran for 26
years beginning back in the 1970s. As it did for a long time
with the Saudi state, it would provide tremendous short- and
long-term benefits to both Iraq and the U.S. In a subdued
``below-the-radar'' fashion, JECOR provided expertise the
Saudis needed to develop such things as its civil service,
national parks, and its emergency response services. The Saudi
Ministry of Finance paid the U.S. for a wide range of training,
advisory, and procurement services. JECOR had as many as 300
advisors in Saudi Arabia at its peak.
A JECOR model, authority for which is found under Section
607 of the Foreign Assistance Act of 1961, would provide one-
stop shopping for economic and technical expertise that the
Iraqis need from many departments of the U.S. Government.
Setting this up under the Strategic Framework Agreement might
eliminate controversy. It could feature, for example, the sort
of procurement processes that come with the FMS program and the
technical assistance attributes of USAID, but for nondefense
goods and services. By having the GOI pay for it openly, or
through a foreign assistance trust fund, one could shield it
from various criticisms. Additionally, it would create jobs in
the Iraqi private sector, bring stability benefits by ensuring
that essential projects such as power stations, generators,
water treatment plants, and hospitals are built on time and to
international standards. Finally, a JECOR for Iraq would
provide a bridge mechanism to the day when Iraq's legal and
business regulatory framework are up to standards.
For the United States, a JECOR would, first and foremost,
fully fund U.S. personnel and support positions, virtually
eliminating any sort of unwelcome sense that may linger
following the occupation. It would promote U.S. standards and
technologies in Iraq--seeding the ground for long-term business
relationships. It would provide incubator or toehold type
advantages that defense-oriented companies participating in FMS
programs enjoy in many countries. In addition it would help
participating firms with still-problematic issues like
receiving payments, tender transparency, and procurement
processes.
Oil Production Growing, But . . .
When one speaks about the dire state of doing business in
Iraq, oil remains an outlier. While oil has complicated
realities, it receives great attention from the Maliki
government and keen interest from international oil companies.
According to briefings received from the Embassy and the
Department of State, Iraq's oil production increased by
approximately 500,000 barrels per day over the course of 2011.
Net production is up to approximately 2.8 million barrels per
day, and net exports are about 2.2 million barrels per day.
Despite improvements to export capacity, particularly the
recent opening of additional moorings near the port of Basrah,
production continues to lag. The reasons are detailed in oil
industry dailies. The infrastructure, including pipelines,
tanks, and storage capacity, limit export capacity. Iraq has
for decades used poor technology and techniques for recovering
oil. But the number one reason Iraq's production lags is
politics. The lack of a grand bargain that would facilitate a
political consensus hampers development of a consensus approach
to Iraq's oil future. Politics hampers the creation of a
coherent investment strategy--or even the creation of a
financing mechanism--that will enable the funding of the
capital to overcome the tremendous infrastructure shortcomings.
The contracts the Government of Iraq signed so far with
international oil companies to develop 14 oil fields call for
Iraq to reach the extremely ambitious target of 12 million
barrels per day by 2017. An estimated $370 billion must be
invested to get Iraq to that production target. An authority at
PFC Energy interviewed by staff in early 2011 stated that this
would mean Iraq would ``achieve in 7 years what it took Saudi
Arabia 70 years to do.'' The hurdles Iraq must clear to make
that happen are tremendous, however, and industry experts think
that Iraq will be fortunate to reach 5 million barrels per day
by the end of 2016.
To reach even the 5 million per day figure, the equivalent
of adding about a half-million barrels per day per year over
the next 6 years, would require absolute commitment by the
government. It would require that a large share of oil revenues
be reinvested into oil infrastructure. It would require that
security continue to improve. And it would require that oil
revenue and investments be handled transparently with a minimum
loss to corruption. Iraq also will have to overcome the brain
drain that has occurred in the country over the last 8 years
and seek an infusion of human capital--much as Saudi Arabia
did--to help manage this massive effort.
Iraq's capacity for sustaining democracy will depend
greatly on the outcome of its oil development efforts. If oil
revenues are expanded and transparently managed for the good of
the whole country, there will be less tension between factions
and regions and more stability grounded in improved services
and education.
The lack of security is a handicap as well, but oil
companies are willing to pay for the security if the Government
of Iraq will do their share. The uncertain security environment
made it impossible for the STAFFDEL to visit Basrah or the
southern oil fields, but staff visited the Kurdish capital of
Erbil, where a great deal activity can be found. In Erbil,
staff met with most of the U.S. firms who have operations in
the Kurdish territories, including executives from Hillwood,
HKN, Hess, and Marathon. Staff met in Washington with senior
Kurdish Government officials, including the Minister of Natural
Resources, Ashti Hawrami, Foreign Minister Falah Mustafa Bakir,
and Dr. Fuad Hussein, Chief of Staff to the President of the
Kurdistan Regional Government.
Experts see real growth capacity in the North, including
capacity to export in the Ceyhan pipeline. The IKR can be
exporting 700,000 bpd by 2015 (up from more than 175k today).
Given that Northern Oil Company production is declining, the
Kurdish area will be the dominant producer in the north.
Nevertheless, because no Hydrocarbons or Oil Law has been
enacted, this potential growth is jeopardized as well.
In Baghdad, while staff were unable to secure a meeting at
the Ministry of Oil, staff were briefed by U.S. Embassy
officials and met with Thamir Ghadban, Chairman of the Prime
Minister's Advisory Council and former Minister of Oil. Senior
Petroleum Expert Natik al-Bayati was also in the meeting. Iraqi
Oil production will reach 3.4 million barrels per day in 2012,
about 500,000 more per day than in 2011. The 100 billion USD
(117 trillion ID) draft budget for 2012 includes a $15-20
billion critical infrastructure fund that will function ``much
like a sovereign guarantee.'' This is an essential point
because right now the Government of Iraq must finance every
single project out of the treasury and needs to establish a
sovereign guarantee to qualify for assistance from OPIC or the
Ex-Im Bank. One interlocutor compared Iraq's current financing
process to buying a house out of your annual salary.
In the meeting, Chairman Ghadban said that the American
companies, aside from ExxonMobil and Occidental, are not
playing the dominant role in the oil sector that Iraqis had
hoped. He said that Chevron should be encouraged to invest, and
he noted that investors from France, Turkey, South Korea, and
Italy are far more active in Iraq than American companies.
Ghadban made no mention of Halliburton, Baker Hughes,
Weatherford International, and Slumberger, all of which are
handling a great deal of the oil services.
When asked about Hunt and Marathon, who operate in the
North, Ghadban waived off that fact, as if the work in the
Kurdish region was child's play. Without emotion, he condemned
the KRG's awarding ExxonMobil exploratory blocs. He noted that
under the constitution the contracts would be illegal because
the KRG lacked the legal right to award such contracts
independently of the central government. He noted further that
three of the blocks are in areas outside the borders of the
Kurdish region, although they are controlled by Kurdish forces,
and it was clear that he felt that ExxonMobil would have to
make a choice over which contract it would pursue.
Ghadban matter-of-factly described the controversial and
elusive hydrocarbon law, suggesting there was a reasonable
opportunity, under an agreement reached between Maliki and KRG
Prime Minister Barham Saleh, for the Oil and Gas Committee to
review and reconcile differences among the versions of the
draft law and that it could come up for first reading in 2012.
The draft in current favor is again the February 2007 version
of the law.\14\ In 2007, Iraq's political blocs all agreed to
it publicly, but it did not get through the legislative
process. Each side points to specific shortcomings in the law.
The shortcomings have a great deal to do with the different
approaches to oil development. The Kurds are following a
privatization policy in managing their resources, while the
central government has preferred to work under the slogan that
``Iraq's oil is for all Iraqis,'' which is expressed in general
terms in the constitution.
The two approaches are not irreconcilable. Nevertheless, it
has kept, for example, Baghdad from using production sharing
agreements (PSAs), which the Kurds have favored. Baghdad has
favored technical services contracts (TSCs) to develop its
fields. Because of their incentive structure, PSA's are
generally favored in the exploration phase, where companies are
entitled to part of any crude they find in return for assuming
the risk of finding none. TSCs, on the other hand, pay out a
set rate on each barrel of oil drawn out of the ground, in
Iraq's case above a certain threshold. Payments generally are
occurring ``in kind.''
Kurdish officials, meeting with staff in Washington, were
less optimistic about the oil law's chances and suggested
Baghdad was constantly throwing up obstacles. For example, they
said that Baghdad's protests against Kurdish contracts for
exploration rights in disputed territories were ``an excuse . .
. they are against all contracts.'' The Kurds view the
hydrocarbon law as good for both investors and Iraqi citizens.
Staff assess that Parliament could make progress in this
regard, with the reservation that the Iraqis have not been
aggressive in brokering solutions across a range of legislative
issues. The Kurds were also critical of the U.S. Embassy's
efforts in trying to bring about resolution of the hydrocarbon
law and related issues, but staff assesses that in this regard
the time has passed when the U.S. can propound a solution and
have everyone sign on.
Transparency may still be the best weapon in working
through the challenges with oil, contracts, and payments.
Iraq's State Oil Marketing Organization appears to be
publishing its production and export records online, but the
contracts and agreements are not online. And, the Kurdistan
Regional Government has its PSA's online but not production
figures.
Corruption Continues
Corruption continues to be a problem in Iraq, stymying
economic growth and adding to the pervasive distrust and
political fragmentation. Transparency International's 2011
``Corruption Perceptions Index'' gives Iraq a 1.8 out of 10,
which places it in the bottom 10 of the 182 countries ranked
and (right below Haiti) and qualifying it as ``highly
corrupt.'' This represents a modest improvement from 2009 and
2010, when Iraq scored a 1.5 and was in the bottom five of all
countries rated.
Staff asked several interlocutors about corruption. There
is little of note to report. Progress is fleeting and many of
the same old problems persist. Nevertheless, international
groups like Transparency International and the World Bank are
sanguine about Iraq's potential to improve, noting Iraq's not-
so-distant past. The most interesting reply staff received on
this subject was from Dr. Sami, the Chairman of the Iraqi
Investment board who stated with emotion, ``Corruption was not
known in Iraq. Sanctions created it during the 1990s when
people did it to survive. In 2003, the institutions were
eradicated. From 2004-2008, corruption continued, as you had
people struggling for their own existence and hundreds of
people dying. Stealing is better than killing.'' But he said,
``Judge me on my efforts to fight it. We are trying to rebuild,
we have a long way to go, we are optimistic.'' Some corruption
is to be expected, but according to Embassy officials, it
remains pervasive and reaches to the highest levels of the
government. Couple that with what one Iraqi-American
businessman said was a ``Socialist, anti-Western mentality, and
a fear and loathing of the private sector,'' and you have the
recipe for a slower road to recovery than even realists have
predicted.
Without stronger laws and institutions, transparency will
be the Iraqi people's No. 1 weapon, increasing the importance
of programs like the Extractives Industries Transparency
Initiative (EITI) so that as oil production increases, the
Iraqi people can note those figures and judge whether benefits
are making their way to them.
Iraq was accepted as a candidate country to (EITI) on 10
February 2008.\15\ On 23 December 2010, Iraq published its
first EITI report to which Eddie Rich, Deputy Head and Regional
Director for the EITI International Secretariat, gave high
marks, even if some of the figures do not quite match up to
auditing standards. This is partly because they are provided,
Rich said, by 34 different companies who provide figures on a
disaggregated basis. It also does not cover domestic sales, for
which EITI worries there is ``no accounting or explanation.''
The implication is that such sales could be fraught with
corruption. The report, like most EITI reports, has a 2-year
lag. It looks at reconciling 2009 figures, not current day
agreements, contracts, and production figures. 2010, Mr. Rich
said, will be a different case for Iraq because they entered
into new agreements and made many payments and signing bonuses
that were not put on the books.\16\
By August 9, 2012, Iraq will have undertaken a ``validation
exercise'' or quality assurance check through its
multistakeholder process. Stakeholders, including major oil
companies like ExxonMobil and Shell, civil society
organizations, and the government, will rate Iraq against the
20 requirements of the EITI standard. It would not be unusual
for Iraq to not be found compliant. In fact, Mr. Rich stated,
``most countries do not become compliant after a single
report.'' It is not a pass-fail system.\17\
A Rosier View From the Iraqi Kurdistan Region
Staff spent 2 days in Erbil, the capital of the Iraqi
Kurdistan Region (IKR). Arriving via commercial airline from
Jordan, one is immediately impressed by the glistening, new
airport that opened in 2010 and receives direct flights from
Cairo, Dubai, Vienna, and Istanbul in addition to Amman. Cranes
are moving and new construction is everywhere. Traffic, jammed
with imported new cars from all over the world, moves with
purpose and in rhythm with the business day. Visitors can pick
a visa up at the terminal. The energetic U.S. Consul General is
a Foreign Service veteran named Alex Laskaris who speaks
Kurdish and is a font of knowledge about the Kurdish region. He
sees his No. 1 job as keeping Kurdistan in Iraq.
The attitude of the Kurdish Regional Government (KRG)
toward business is to provide security, institute friendly
policies, and get out of the way. Critics say the security
forces are heavy-handed, and the government still owns a piece
of everything (one Barzani brother has a share of the Coke
franchise, another has Pepsi), but there is no denying
Kurdistan welcomes private sector investment. It has conquered
its electricity supply problem by having a company named Mass
Global Energy build 1750 megawatts of electricity generation.
Mass Global then sells the power to the government to
distribute to customers. Ford, GM, Chevrolet, Caterpillar, John
Deere and many others have opened up distributors. GM reported
that its fastest growing market in 2010 was Iraq due to
increased political stability in the country, and it all began
in the IKR, which licensed the first GM dealership in Iraq in
2010. GM's sales in 2010 rose 52 percent from the previous year
and expanded another 68 percent in 2011. It sold 32,000
vehicles in Iraq, second to Saudi Arabia in the region.
Staff met with several American entrepreneurs who have made
the Kurdistan Region their home and are enthusiastic about
business prospects and are realistic about tax policies and
corruption. Their only serious complaints were about the lack
of consular services available at the U.S. consulate. One
businessman recently had a child and he and his wife have to
make the dangerous trip to Baghdad to get the child a passport.
According to international oil executives, their top
challenges will be exporting product and getting paid. Payments
are supposed to go from New York to Baghdad, and then to the
KRG. New production from Kurdistan will come online in 2012.
OSC-I
The Office of Security Cooperation--Iraq team is comprised
of 157 uniformed personnel and about 800 contractors and
civilians who are working on almost 400 FMS cases worth $10.2
billion ($7.7 billion Iraqi share). OSC-I is led by a U.S. Army
3-star, LTG Robert Caslen, and a 2-star Navy SEAL deputy. LTG
Caslen had been dual-hatted as the head of NATO Training
Mission - Iraq, but that mission folded at the conclusion of
2011 because the Iraqis would not grant NATO troops immunities
from Iraqi law.
OSC-I's mission is training and equipping the Iraqi Army.
They have a huge, uphill battle ahead of them. The
relationships they have inherited from the 9-year occupation
may prove crucial to their success. They are well positioned to
deliver and are laying the groundwork for the long-term
``strategic relationship,'' while providing a means for
American companies to get their foot in the door. Their mission
statement says they conduct `` . . . Security cooperation
activities to build partner capacity in support of the
developing strategic partnership with a sovereign, stable,
self-reliant, and regionally integrated Iraq.'' It glosses over
the ``nonpermissive environment'' and ``regional instability''
printed boldly on the briefing slides.
OSC-I's plans are aggressive, designed to build ``enduring
capacity'' for the Iraqis. It is investing large dollars in the
mission despite the political fragmentation, corruption, and
lack of ministers atop the security ministries. Many of the
major weapons systems will build the Iraqi Air Force and air-
mobility capacities with American-made equipment including C-
130 transports, F-16 fighters, trainers, and various helicopter
models. The Army will be outfitted with M1A1 tanks, troop
carriers, and howitzers. There are plans for ground-based air
defense systems, and for the Navy, off-shore support vehicles,
UAV's, and patrol boats.
Some of the plans seem off-base, such as pushing to sell 18
more F-16s at a time when there is only one pilot in training,
no officers enrolled at U.S. academies, and as noted above, a
visa program at a near standstill. But OSC-I is committed.
Cost of the Mission May Be Its Death Knell
The State Department is running the Embassy in Baghdad,
consulates in Basra and Erbil, the equivalent of a small combat
hospital, several health clinics, an airline, airfields and all
of the logistical elements involved. There are some dozen sites
around the country. The price tag for operating all of this
(including development and assistance programs) will be around
$6.5 billion for 2012, well above that cost of any other U.S.
diplomatic mission--but far lower than the more than $40
billion in U.S. spending budgeted for fiscal 2011 in Iraq.
The civilian mission numbers about 1,800 USG employees,
backed by about 14,000 contractors of various stripes (care,
feeding, maintenance, security, NGOs, and USAID implementing
partners). The bulk of the $6.5 billion is tied up in
operations and security. Overhead accounts for upward of 80
percent of costs according to the Special Inspector for Iraqi
Reconstruction (SIGIR). Such costs are unsustainable.
The high cost comes under greater scrutiny when effects are
measured. Because of pushback from the GOI, and the challenging
security conditions, many planned programs are not being
executed. Embassy staff are frustrated by their inability to
have an impact.
Ambassador Jeffrey may have been only slightly exaggerating
when he told staff that trucking food in from Kuwait to provide
meals for personnel costs 50 times what it would if the Embassy
were making purchases on the local economy. In Baghdad, core
Embassy staff are housed in fully furnished apartments--down to
ironing boards, vacuums, pots, pans, plates and glassware--yet
the Embassy has maintained the Army way of feeding the troops:
providing, at no cost to all assigned personnel, three meals a
day cafeteria style, with four or five different lines of
cuisine choices. Ambassador Jeffrey inherited a huge military
operation. He expressed that he had little choice but to
continue operating in the same fashion, although he was fully
aware of the need to shed overhead costs or programs, and he
would rather shed costs.
Staff was pleased to see that Consulate General Erbil is
leading in this respect already. Although it, too, provides
meals free-of-charge for its staff, but via meal vouchers which
are redeemed at a local establishment that is within the
security perimeter. There is also a minimart that sells basic
groceries. This allows many to take meals (particularly
breakfast) in their own apartments. And because the security
environment is more benign, staff can even stop for lunch while
out in town for a meeting. CG Erbil has also begun hiring
guards from the local population, something State does at posts
around the world.
The ratio of contractors to diplomats draws attention. The
State Department's reliance on contractors itself is
reasonable. According to the Department of State, ``Although
not as large as that of DOD or other federal agencies, State's
contracting activity grew from $1.8 billion in 2001 to $8.8
billion in 2011. Most of this growth was for programs in Iraq
and Afghanistan.''
The U.S. Government does not have in its deployable arsenal
sufficient security personnel, janitors, cooks, drivers,
landscapers, etc.; nor should it. However, the Department of
State must ensure it has ample contract oversight personnel
deployed to ensure that the taxpayer is getting all that is
being paid for, and that the mission is not being sacrificed or
slowed because of shortcomings. Audits and inspections are
important, and the work of the OIG, GAO, SIGIR, DCAA, DCMA, and
others are invaluable, but greater emphasis should be placed on
management. For example, State has put on staff in Iraq a
retired U.S. Army Medical Service Corps officer who is the COR
\18\ for its medical contract. The medical contract, with a
ceiling of nearly $1 billion, covers a hospital and several
clinics scattered across the country and provides for emergency
evacuations. It is unreasonable to expect one person to
adequately manage, much less provide oversight and
accountability for, a $1 billion contract with facilities and
personnel working all across Iraq.
State has hired an additional 103 procurement staff since
2008, but according to analysis done by the Government
Accountability Office (GAO), across the board, State does not
have enough dedicated COR's monitoring contracts and task
orders in country. The State Department's Acting Inspector
General, Howard Geisel, stated in a phone interview with staff,
``The biggest single problem in these situations is the
Department having enough qualified contracting officer
representatives (CORs) within the missions and in the
contingency regions.''
Staff further note that many of the COR's have other
primary tasks not related to contract management and that most
contract oversight personnel are located in the DC metropolitan
area, not in country. In the case of buying a truckload of
tomato paste for the cafeteria, you can manage remotely, but
when it comes to managing 14,000 people who are essential to
mission execution, staff strongly believes more direct
oversight is necessary. This might require a change from the
``centrally managed'' approach the State Department has found
works elsewhere, but Iraq and Afghanistan are unique in many
ways.
Recommendations
Concrete policy recommendations are difficult to come by,
but some pragmatic steps could make a difference in getting
Iraq open for business and help pave the way for political
progress.
The Department of Commerce should fund an increase
to its Foreign Commercial Service staffing in Iraq,
particularly to hire more locally engaged staff (LES).
This would enable them to better navigate the oddities
of the Iraq commercial sector, build corporate
knowledge, and provide better advice and assistance to
American companies.
A large-scale Joint Economic Cooperation (JECOR)
program, modeled on the Saudi Arabia program that
existed for three decades, should be initiated with the
Government of Iraq under Section V of the Strategic
Framework Agreement. Under U.S. law, authority exists
under Section 607 of the Foreign Assistance Act of
1961. Such a program has great potential benefits for
both the United States and Iraq.
Embassy Baghdad should open a small commissary on
the premises as soon as possible. Embassy personnel
expressed a willingness and desire to cook their own
meals, but they cannot procure groceries on the Embassy
campus, nor make trips into town. This would have an
immediate impact on dining facility demand and costs,
help identify challenges and opportunities, and provide
a bridge to the future. Changing the dining facility to
a fee-for-service from an all-you-can-eat enterprise
might also be worth considering.
Cuts must be made to Embassy staffing. The
Department faces tough decisions in adjusting the size
of the Embassy staff, which is larger than it needs to
be to accomplish the mission. This has probably been
postponed because transition was a higher priority, but
cuts can and should be made now before the next
assignment and rotation period commences this summer.
Currently numbering 10 or 11 sites, the United
States Government should reduce or consolidate the
number of sites from which it is operating in Iraq.
Each site requires a cadre of static guards and support
personnel that add exponentially to the cost of the
Iraq operation.
In and around Baghdad, no meaningful downsizing can
occur if the Embassy has to continue to control the
sprawling expanse of real estate for which it is
currently responsible, including six separate sites in
Baghdad alone. The Department must look for ways to
shrink its footprint. One option would be to close FOB
Union III, which exclusively houses the OSC-I mission.
Those offices should transition to the buildings that
were originally constructed for that purpose on the
Embassy campus.
The Secretary of State should commission an
independent review of the scope and expectations for
the Police Development Program, perhaps resembling the
commission that Gen. Jim Jones and former DC Police
Chief Charles Ramsey led in 2007 that included current
Senate Sergeant-at-Arms Terrance Gainer. From a
distance and considering current conditions the current
program looks unsustainable. Alternatively, the PDP
could become a core element under JECOR and be funded
by the GOI.
According to the contracting officials at DCMA, the
LOGCAP contract provides flexibilities to procure
locally and even hire local Iraqis. State, through the
Defense Contract Management Agency, should push KBR,
which carries the LOGCAP responsibilities, to hire and
train more Iraqis. The same should be done to increase
local food procurement through the contract held by DLA
(the Defense Logistics Agency). Start soon. Start
small.
The Department of State should hire, train, and
deploy more CORs to actively manage the large contracts
and contract-hired personnel it relies upon to operate
the Iraq mission. In addition to providing better in-
country oversight now, as it transitions from some of
the DOD/DCMA-procured contracts, the Embassy will
benefit from such on-sight expertise.
The Department of State should enable ConGen Erbil
to, at a minimum, provide consular services for
American Citizens living in the Kurdistan Region. Staff
met with several American businessmen who are living
with their families in northern Iraq. One had recently
had a baby and was contemplating the requirement to
travel to Baghdad to get a passport for the child.
The Federal Aviation Administration should repeal
SFAR 77, which prohibits all U.S. air carriers or
commercial operators from conducting flight operations
over or within the country of Iraq. Several foreign
carriers are operating into Baghdad International, and
even more private carriers are flying into Erbil, yet
American carriers are prohibited--and that includes
jets belonging to American oil and oil services
companies like Shell, Hess, Hunt, ExxonMobil,
Slumberger, and KBR.
The multilayered screening procedures for Iraqi
Refugees and Special Immigrant Visa (SIV) applicants
are costly, cumbersome, and ultimately defeat the goals
of these programs by keeping applicants in a state of
limbo for extended periods of time. The administration
should either terminate the SIV program or add $5
million to adequately staff to eliminate backlogs that
are more than 2\1/2\ years long.
The FY 2007 National Defense Authorization Act
(NDAA) expanded the Iraqi SIV program to offer
protection to more Iraqis who were risking their lives
to assist/work for the United States mission in Iraq.
The program was further expanded by Section 1244 of the
2008 NDAA. Previously limited to interpreters and
translators who worked for the military and the
Embassy, more employees became eligible. The program is
due to expire next year. The program should be allowed
to terminate, and seek to accommodate only those who
have already applied using quotas that have already
been established, but left unfilled. If a new
humanitarian crisis opens, new legislation can be
considered.
APPENDIX I--ISSUES TO BE REGULATED BY LAW UNDER THE IRAQ CONSTITUTION19
------------------------------------------------------------------------
No. Article Issue
------------------------------------------------------------------------
1............................... 9(2).............. Military service.
2............................... 12(1)............. Flag, national
anthem and
emblem.
3............................... 12(2)............. Honors, official
holidays,
occasions, and
calendar.
4............................... 18................ Citizenship
(entitlement,
withdrawal,
reinstatement,
multiple
nationalities).
5............................... 22(2)............. Relationship
between employees
and employers.
6............................... 22(3)............. Forming and
joining trade
unions.
7............................... 23(2)............. Expropriation.
8............................... 24................ Freedom of
movement of
manpower, goods
and capital.
9............................... 26................ Encouraging
investment in
various sectors.
10.............................. 27(2)............. Preservation,
management and
disposal of State
property.
11.............................. 28(1)............. Taxes and fees.
12.............................. 28(2)............. Exemption from
taxes for low
income earners.
13.............................. 30(2)............. Social and health
security to old,
sick, disabled,
unemployed,
homeless and
orphaned.
14.............................. 31(2)............. State Supervision
and building of
hospitals and
clinics.
15.............................. 32................ Care for the
handicapped.
16.............................. 34(4)............. Public and private
education.
17.............................. 38(C)............. Assembly and
peaceful
demonstration.
18.............................. 39(1)............. Forming and
joining political
parties.
19.............................. 41................ Personal status.
20.............................. 43(1)............. Management of
religious
endowments.
21.............................. 45(1)............. Strengthening/
developing civil
society
institutions.
22.............................. 49(3)............. Election of
Council of
Representatives.
23.............................. 49(5)............. Replacing members
of the Council of
Representatives.
24.............................. 63................ Rights and
privileges of the
Speaker, two
deputy speakers,
and members of
the Council of
Representatives.
25.............................. 65................ Formation,
conditions and
competencies of
the Federation
Council.
26.............................. 69(1)............. Nomination of
President of the
Republic.
27.............................. 69(2)............. Nomination of Vice
Presidents of the
Republic.
28.............................. 74................ Salary of the
President.
29.............................. 82................ Salaries of the
Prime Minister
and Ministers.
30.............................. 84(1)............. Duties and
authorities of
the security
institutions and
National
Intelligence
Service.
31.............................. 86................ Formation and
authorities of
the ministries.
32.............................. 89................ Regulation of
federal courts.
33.............................. 90................ Establishment,
authorities and
rules of the
Higher Juridical
Council.
34.............................. 92+............... Number, member of
selection and
work of the
Federal Supreme
Court.
35.............................. 93(6)............. Settling
accusations
against the
President, Prime
Minister and
Ministers.
36.............................. 96................ Establishment of
courts,
appointment of
judges and
prosecutors and
their terms of
service and
discipline.
37.............................. 97................ Discipline and
removal of
judges.
38.............................. 99................ Regulating
military
judiciary and
jurisdiction.
39.............................. 102............... Functions of the
High Commission
for Human Rights,
the Independent
Electoral
Commission and
the Commission on
Public Integrity.
40.............................. 103(1)............ Work of the
Central Bank,
Board of Supreme
Audit,
Communication and
Media Commission
and the Endowment
Commissions.
41.............................. 104............... Functions and
competencies of
the Foundation of
Martyrs.
42.............................. 105............... Establishing a
commission to
guarantee the
rights of regions
and governorates
not organized
into regions.
43.............................. 106............... Establishing a
commission to
audit and
appropriate
federal revenues.
44.............................. 107............... Establishing the
Federal Public
Service Council.
45.............................. 112(1)............ Management of oil
and gas from
current fields
and distribution
of revenue.
46.............................. 109............... Oil and gas
revenue
distribution and
regulation.
47.............................. 114(7)............ Water policy.
48.............................. 118?.............. Procedures to form
regions.
49.............................. 122(2)............ Authorities of
governorates not
organized into a
region.
50.............................. 122(4)............ Election and
powers of
Governorate
Councils and
Governors.
51.............................. 123............... Regulation of
power delegated
to the regions.
52.............................. 124(2)............ Status of Baghdad.
53.............................. 125............... Administration,
political,
cultural and
educational
rights for
minorities.
54.............................. 132(3)............ Care and
compensation for
families of
martyrs,
political
prisoners,
victims of
previous regime,
and those injured
by terrorist
attacks.
------------------------------------------------------------------------
End Notes
1. According to a report by the Public International Law & Policy
Group (PILPG), ``Next Steps for Implementing the Iraq Constitution,''
written in 2006, more than \1/3\ of the Constitution will be
``determined'' or ``regulated by to-be-written laws. The list of 54
specific mentions is included at Appendix I.
2. A Security Advisory Opinion (SAO) is a multiagency name check
required in all cases of possible immigration inadmissibility under INA
212(a)(3)(C). US. Department of State Office of the Inspector General,
Report of Inspection Embassy Baghdad Iraq, Report # ISP-I-09-30A dated
July 2009 provides good overview of this security review process that
it describes as ``among the most severe in the world.''
3. The term 1.5 carrier presence in Navy parlance means that they
will have at least one carrier strike groups patrolling the area,
sometimes two.
4. Interview with Dr. Jaber Al Jaberi, 12/7/2011.
5. From e-mail discussion with John Greenhalgh, Director Middle
East and Africa Electronic Systems for ITT/Excelis, 6 March 2012.
6. The International Bank for Reconstruction and Development/The
World Bank, ``Doing Business 2012, Doing Business in a More Transparent
World.''
7. International Rescue Committee, ``Youth and Livelihoods
Assessment: Baghdad,'' May 2011, p. 16.
8. ``Unemployment Threatens Democracy in Iraq,'' USAID Agricultural
Policy Dialog Series #10, January 2011.
9. CLDP's Iraq program cost $8.65 million from 2006 to mid-2011.
10. Sources: U.S. Department of State Web site; Web sites of the
Embassies of Argentina, Bahrain, Kuwait, the Philippines, South Africa,
Tanzania; phone conversations with Embassies of Argentina, Botswana,
Brazil, Chile, France, Germany, Iraq, Kenya, Kuwait, the Philippines,
Poland, South Africa, Tanzania, and United Arab Emirates (Feb. 2012).
11. Perfect score is 100, five points are deducted as follows: if a
visa is needed for entry, if visas are not available at points of entry
(if they are, two points are added), if standard visa processing time
exceeds 1 month, if additional, nonhealth related bureaucratic demands
are made after entry, if exit procedures are not conducted at points of
departure, and if entrance or exit fees are required. Ten points are
deducted if the validity of business visas, the cost of a business
visa, or the visa processing time are determined on a case-by-case
basis instead on a standardized basis.
12. A 3161 employee, is a temporary direct-hire employee, so named
because of the section of the law that governs this type of employee:
USC Title 5 Part III Subpart B Chapter 31 Subchapter IV Sec. 3161.
13. View the SFA online at this link: http://www.acq.osd.mil/log/
PS/p_vault/SE_SFA.pdf.
14. The 2007 draft law is available on the web at this address:
http://web.krg.org/uploads/documents/
Draft%20Iraq%20Oil%20and%20Gas%20Law%20English_2007_03_09_h17m2s47.pdf
15. SFRC staff reported on Iraq's EITI pursuits in a 2008 report
entitled ``The Petroleum and Poverty Paradox: Assessing U.S. and
International Community Efforts to Fight the Resource Curse.''
16. Video teleconference interview between Mr. Rich and SFRC
staffmember Patrick Garvey, March 2012.
17. Ibid.
18. Contracting Officer's Representative (COR) means an individual
who is designated and authorized in writing by the contracting officer
to perform specific technical or administrative functions on contracts
or orders. The term COR includes any individual (military or civilian)
performing these types of functions on contracts regardless of the term
used to describe their position, specialty or assignment (e.g.,
alternate CORs, assistant CORs, Contracting Officers' Technical
Representatives (COTRs), task order monitors, task order managers,
performance assessment monitors, etc.). These individuals serve a
critical and vital role in assuring contractors meet the performance
requirements of the contract in terms of cost, quality, quantity,
schedule and cost/price. Only contracting officers have the authority
to delegate these functions and assign a COR, a COR is not authorized
to further delegate any responsibility.
19. Next Steps for Implementing the Iraq Constitution, Public
International Law & Policy Group (PILPG), 2006, p. 13-15.