Free-Market Iraq? Not So Fast By DAPHNE EVIATAR Published: January 10, 2004 There is no doubt about American intentions for the Iraqi economy. As Defense Secretary Donald H. Rumsfeld has said, "Market systems will be favored, not Stalinist command systems." And so the American-led coalition has fired off a series of new laws meant to transform the economy. Tariffs were suspended, a new banking code was adopted, a 15 percent cap was placed on all future taxes, and the once heavily guarded doors to foreign investment in Iraq were thrown open. In a stroke, L. Paul Bremer III, who heads the Coalition Provisional Authority, wiped out longstanding Iraqi laws that restricted foreigners' ability to own property and invest in Iraqi businesses. The rule, known as Order 39, allows foreign investors to own Iraqi companies fully with no requirements for reinvesting profits back into the country, something that had previously been restricted by the Iraqi constitution to citizens of Arab countries. In addition, the authority announced plans last fall to sell about 150 of the nearly 200 state-owned enterprises in Iraq, ranging from sulfur mining and pharmaceutical companies to the Iraqi national airline. But the wholesale changes are unexpectedly opening up a murky area of international law, prompting thorny new questions about what occupiers should and should not be permitted to do. While potential investors have applauded the new rules for helping rebuild the Iraqi economy, legal scholars are concerned that the United States may be violating longstanding international laws governing military occupation. History provides limited guidance. The United States signed both the Hague Regulations of 1907 and the Fourth Geneva Convention of 1949 and has incorporated their mandates regarding occupation into the Army field manual "The Law of Land Warfare." But foreign armies, whether the Vietnamese in Cambodia, the Turks in Northern Cyprus or the United States in Panama and Haiti, have rarely declared themselves to be occupying forces. After World War II, for example, the Allies claimed the Hague regulations did not apply because they had sovereign power in Germany and Japan, which had surrendered. And although most of the world calls Israel's control of the West Bank and Gaza since 1967 an occupation, the Israeli government has not accepted that status, although it has said it will abide by occupation law. Reconstruction and privatization in Kosovo, for example, have been bitterly debated. The United Nations authority over Kosovo, set up by the peace treaty after a war that was unsanctioned by the United Nations, hesitated to privatize what was in essence seized state property, but it decided the economic future of Kosovo was too important to wait for a final peace settlement that would fix Kosovo's legal status. The government in Belgrade and the much-reduced Serbian community in Kosovo have argued that such sales are specifically forbidden in the United Nations resolution setting up the authority itself. This dispute, though similar, sidesteps questions of occupation law because Kosovo, unlike Iraq, involves United Nations and NATO forces. In Iraq the latest pronouncements by the Security Council only add to the muddle. Resolution 1483, issued in May, explicitly instructs the occupying powers to follow the Hague Regulations and the Geneva Convention, but in a strange twist it also suggests that the coalition should play an active role in administration and reconstruction, which many scholars say violates those treaties. The conflict centers on Article 43 of the Hague Regulations, which says an occupying power must "re-establish and insure, as far as possible, public order and safety, while respecting, unless absolutely prevented, the laws in force in the country." In other words, the occupying power is like a temporary guardian. It is supposed to restore order and protect the population but still apply the laws in place when it arrived, unless those laws threaten security or conflict with other international laws.