Iraqi Economists Network

شبكة الاقتصاديين العراقيين

Legal & Regulatory Framework

Iraq’s Rule of Law. By Luay Al-Khateeb and Omar Al-Saadoon

Iraq’s rule of law

Introduction

The underlying concept of the Rule of Law is not new to Iraq. Hammurabi’s world famous Code of Law which dates back to 1772 BC is regarded as one of the world’s first codified constitution with the remarkable feature of laws taking primacy over the authority of the ruler.

Back to the present, Iraq ratified a new Constitution in 2005 setting out a legal framework and public institutions all of which are intended to serve the Rule of Law. Internationally, Iraq is a signatory to various international treaties and initiatives on matters of commercial interest relating to the Rule of Law. Iraq therefore has a historic and internal ‘legal infrastructure’ which is bolstered by its commitment to international obligations all of which are designed to promote the Rule of Law and good governance in Iraq.

The question which is immediately raised then, why does the Rule of Law in Iraq continue to be an urgent issue of serious concern to the Iraqi leadership and domestic and foreign investors alike, particularly in light of the escalating conflict between Iraq’s security forces and the Islamic State of Iraq and Syria (‘ISIS’)?

We submit the answer lies in both (a) the fragile balance which must now be struck in overcoming the occupation of ISIS without endangering the civil liberties and human rights which all Iraqis must be assured of and (b) the historic unpredictability of Federal political and legal institutions in enforcing the Rule of Law.

Concept of the Rule of Law

There is no unified concept of the Rule of Law as this has developed across countries based on socio-demographic factors over time. We believe the Rule of Law is essentially a fluid concept based on a history of legislative development and evolving social values which cannot be imposed by any institution, segment of Iraqi society or foreign influence outside of Iraq. It would be naïve for commentators to compare the Rule of law in Iraq to other countries given that:

a) The Constitution does not establish clear mechanisms by way of checks and balances between branches of Government, the Judiciary and Judicial oversight bodies;

b) Iraq does not have an established or stable legislative history which would provide parameters for the predictability of enforcement of the Rule of Law.

Commonly Accepted Definition

For the purposes of this article, we submit the following definition of the Rule of Law as comprising:
All persons and authorities;
Both public or private;
To be bound by and entitled to;
The practical benefit of the enforcement of laws;
Publicly made taking effect now and in the future; and
Administered by an independent and competent judiciary.

Whilst accountability is an important concept when considering the Rule of Law in the case of business activity, it must be the perceived and resulting enforcement of contracts that matters most.

The Rule of Law — A “Two Way Street”

The emergence of the importance of the Rule of Law can be explained given the ongoing impact of the Arab Spring triggered in part by stagnating economic conditions and the globalized economies in which Iraq now finds itself. Since 2003 Iraq was ‘open for business’ with multinational corporations who not only operate across territorial borders but whose activities are governed by their domestic legislation and their internal rules of corporate governance. This means multinational companies operate within a standardized legal and regulatory framework in which to do business across jurisdictions and the same applies to Iraq.

Conversely the Rule of Law is of importance to policy makers who must regulate the activities of foreign multinational corporations to ensure their contractual accountability (particularly as their shareholders are not accountable) and to control the extent and depth of local market penetration in considering economic issues which are vital to Iraq’s national interest e.g. employment, wage levels etc.

Iraq’s Balancing Act (Government)

Iraq’s political leadership for reasons of necessity particularly given its onslaught against ISIS forces, socio- historical complexities in governing Iraq continues to maintain a highly centralized authority based on the premise of a ‘Rule By Law’ rather than a ‘Rule of Law’ system.

This concept presupposes public officials delegating matters of national importance to unelected bureaucrats or conferring upon themselves decisions of a judicial nature and immunity from those decisions.

Bureaucrats therefore have a wide discretion to make decisions which go unchallenged and thus removes any prospect of accountability and redress. In order to increase efficiency in Iraq’s federal administration there is a perceived if not recognized urgent need for qualified and experienced technocrats to staff Iraq’s civil service. The benefits of this policy would be to shift the basis of appointing civil servants based on meritocracy rather than party political appointments thereby improving the efficiency of government administration, public service delivery and reducing corruption.

Iraq’s Balancing Act (Judiciary)

Irrespective of who applies the law or even the substantive content of the law, it should always be the end result of enforcement of the law that matters most. Effective enforcement depends in the first instance on the Judiciary. The development and administration of the Judiciary remains a fundamental aspect in ensuring a commitment to the Rule of Law in Iraq.

The Constitution explicitly seeks to safeguard the independence of the judiciary. However provisions of the Constitution conflicts with each other by conferring upon parliament via the Higher Judicial Council the right to determine the extent of the Judiciary’s independence.

Up to the moment of ISIS’s incursion in Northern Iraq, Iraq’s economic development was in part, arguably hampered by a Judiciary who were unable for reasons of political interference to perform their basic functions of imparting swift and impartial justice which banks, foreign investors and owners of small medium enterprises would expect. Operational factors such as remuneration, security, technical and human resources continue to be the underlying drivers affecting the Judiciary’s ability to effectively carry out their duties.

However and on an encouraging note, successive administrations since 2003 have collaborated with international bodies such as the UN to increase and modernize judicial capacity to help improve the Rule of Law. It is worth noting UNAMI have recently reported that whilst Iraqi Ministry of Justice has reinstated capital punishment on convictions for terrorism under the Terrorism Law No 13 of 2005, Article 5 of this Law does allow for pardons from the death penalty or commuting sentences to life imprisonment. Whether Article 5 will be exercised by the Government on a wide-scale basis remains to be seen.

Whilst it is understandable in a fledgling democracy such as Iraq now in crisis, where the leadership historically viewed the Judiciary as being an obstacle to power and given the relative inexperience and lack of sufficient and effective capacity of the Judiciary in dealing with commercial disputes involving foreign corporations (during the past 30 years), we submit the sensible approach to understanding the extent of the authority of the Judiciary is to be clear as to what should be their role.

In respect of the Judiciary’s role, we should distinguish between constitutional matters and general civil/criminal matters. In constitutional matters, the Judiciary’s approach should be to interpret the Constitution in such a way as to reflect a truly inclusive socio-ethnic make-up of the whole of Iraq.

The Judiciary should take note that in deciding constitutional matters they must exercise extreme caution so as not to adopt an attitude of discretionary decision making to revise the Constitution in a radical manner to suit the prevailing political interests at the time. If the Judiciary is perceived to indulge in ‘Judicial activism’, this may invite accusations of cronyism which will undermine its legitimacy and defeat the very purpose the Judiciary is intended to serve which is to provide predictability for enforcing the law and in doing so uphold the Rule of Law and Justice.

Whilst certain entrenched policy makers in Baghdad typically view the Judiciary and the Justice system with suspicion or hostility they must also equally accept that if the leadership is to govern a society where the Rule of Law is paramount, the Judiciary and the Justice system must have an integral part in checking the exercise of powers by the Executive Branch and Parliament. It is most probable the balance of the separation of powers will be addressed by the political leadership in Iraq in implementing relevant aspects of Iraq’s constitution.

Economics

International Treaties and Popular Economic Theory

The Rule of Law has effectively become the yardstick and catalyst to economic growth, as it underpins political legitimacy, a country’s laws and economic policies.

The current popular economy ideology being ‘Neo-Liberal Economics’ espouses the Rule of Law for promoting (inter alia) stable property rights and curbing arbitrary governmental action which are arguably conducive to economic growth.

The local and international business communities continue to insist on clear and simplified procedures pursuant to principles of the Rule of Law in doing business in order to reduce cumbersome regulations and policies which are often applied on an ad-hoc and discretionary basis by public officials. Some of these officials have vested or contingent interests in transactions thereby causing inordinate delays and unnecessarily increasing the costs of doing business. This system invariably creates a ‘black market economy’.

Effects of a “Black Market” Economy

In practice, the effects of a “Black Market” economy most notably now operated in territories occupied by ISIS means most types of business are increasingly forced to operate outside the Rule of Law in order to make a quick profit. The effects of a ‘black market economy’ are known to include:

Government’s inability to optimize the Federal Budget due to misleading and distorted government statistical information thereby hampering the efficiency of public expenditure and wasting precious public resources.

Expose foreign corporations to civil and criminal sanctions in foreign jurisdictions on matters of bribery or corruption, a risk most multinational entities are increasingly unwilling to take, particularly if they are listed and subject to domestic regulatory audit requirements.

Public authorities’ difficulty in collecting taxes and charges thereby increasing the burden on Federal and provincial budgets.

Slow growth in levels of Foreign Direct Investment which will harm Iraq’s economic competitiveness as an emerging market in which to business.

Increased disparities within the civil service in terms of quality of service delivery and distortions in scales of salary and associated benefits.

Negate citizen’s respect and adherence for the Rule of Law which erodes the legitimacy of the Government as a whole.

The Russian Example

One would have been tempted to use the example of Putin’s Russia as an argument in favor of a heavily regulated and highly centralized political system taking precedence over the Rule of Law given the recent crisis with the international community over Ukraine, particularly the controversial annexation of Crimea.

However such argument so far is not proving to be a convincing one given the cumulative economic and political effects of US and European sanctions imposed on Russian officials and various sectors of the Russian economy. It should be noted that Putin’s hold on power invariably depends on the tacit support of Russian oligarchs and the Russian masses which in itself is conditional on Russia’s ability to secure its territory, improve its economic performance and raise standards of living.

Whilst Putin has appeared to expand his strategic territorial reach with the annexation of Crimea, Russia’s economy is in serious trouble given the inability of Russia’s central bank to prop up the value of the rouble which has been nose-diving since the end of 2014, the steep rise in inflation compared to the US economy, stagnation in economic growth (being at an all-time low), the decline in oil prices and closed access to foreign capital for Russian companies.

All of these economic effects makes Russia vulnerable in terms of its growing dependency on dwindling foreign reserves which might help to sustain the economic shock but only for a limited period and arguably erodes Putin’s support amongst the business/working classes thereby increasing the prospects of civil strife.

Therefore, the Rule By Law method of governing is to be judged by a relatively new paradigm in the global economy which are the economic effects on a country which is governed by such a system.

The Chinese Example

The argument that mixed free market-centralized economies such as China can experience economic growth for over a decade whilst paying ‘lip service’ to western Rule of Law principles should be treated with caution. In a surprisingly frank admission that public mismanagement and corruption is harming the economic policy of the Government, particularly in light of scandals involving senior government officials and multinational corporations, the Government administration that took over power in 2013, have made it a central policy to enforce the Rule of Law to mitigate corruption in order to safeguard the Government’s credibility and prevent distortions in its domestic market whilst ensuring good economic conditions for the international community in doing business.

Integrated National Energy Strategy

In respect of the impact of the Rule of Law on Iraq’s hydrocarbon sector, The Integrated National Energy Strategy published under the auspices of the former Prime Minister’s Advisory Commission, outlined a series of ambitious reforms in respect of setting (inter alia) a set of national policy objectives for the future of Iraq’s energy sector.

The Rule of Law is implicit in the “Institutional design” aspect of this strategy. Whilst this aspect provides for governance of the energy sector by separation of powers and functions of all main public stakeholders and bodies, the strategy surprisingly does not provide clear guidance as to how the relevant Ministry’s Institutional Reform Committee is to coordinate with other public bodies in the implementation of these governance measures in aid of the Rule of Law.

Whilst the publication of such a report is a positive step towards a Federal energy policy (with the exception of the Kurdistan region), such a report on its own admission, concedes that in the short term, the relevant institutions do not have the required capacity to implement such a strategy and does not clearly identify which public body is to ultimately take ownership for its coordination and implementation.

Conclusion

The Arab Spring and the crisis facing Iraq resulting from ISIS’s epidemic, serve to demonstrate that political stability and economic prosperity can only be effectively brought together by virtue of a depoliticized Rule of Law and for such Rule of Law to gradually become a common underlying feature of Iraqi culture and mainstream politics and Governmental administration.

The most critical priority for the Government in helping to establish the foundations of the Rule of Law is to do all things necessary in a transparent manner in giving actual authority and accountability (as envisaged and prescribed the Constitution) to institutions such as the Judiciary to help guarantee (in part) economic prosperity if the political leadership’s main objective is to strengthen their legitimacy and the legitimacy of the State.

By: Luay Al-Khatteeb and Omar Al-Saadoon

Comment here

%d bloggers like this: