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Global Trends by Martin Khor

Monday 17 November 2003


WHO’S GUILTY OF CRONYISM NOW?

BLURB:    A senior US trade official recently accused developing countries’ Ministers and officials of wearing expensive jewelry at the WTO’s Cancun Conference, implying that corruption was the reason why they did not want to negotiate a new treaty on government procurement.   But recent reports have exposed how the US Administation itself is channeling many billions of dollars of contracts in Iraq and Afghanistan to companies linked to its leaders and friends.   A case of pot calling the kettle black?

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Two recent reports have shown up again the double standards of the United States administration, which criticizes other countries for unsavory practices, when it is itself  just as guilty or even more so.  A case of pot calling the kettle black.

Earlier this month, Reuters news agency reported that a senior US trade official suggested that government corruption was a reason some developing countries were reluctant to start negotiations at the World Trade Organisation meeting in Cancun in areas such as government procurement.

The US Commerce Undersecretary, Grant Aldonas, said:  “When I look at the developing world and I look at decision makers in the room who are wearing expensive jewelry and then don’t want to negotiate about transparency in government procurement, I have a very different perspective about whether they want an agreement.”

Speaking in Washington, he was explaining why the US and European Union did not have “a lot of incentive to lower our trade barriers if poor countries refuse to lower theirs.”

Aldonas’s rude allusion to the dressing habits of developing countries’ Ministers and officials at the Cancun Ministerial meeting sparked quite a lot of outrage among these countries’ diplomats in Geneva.  It certainly did not help the efforts underway to re-start the talks that failed to conclude in Cancun.

Many developing countries had rejected intense pressures from the EU and other developed countries to begin negotiations on government procurement and three other “new issues” (investment, competition and trade facilitation) because they perceived that serious damage would be done to their economies and societies if new treaties on these topics were established in the WTO.

The developing countries, including Malaysia (which played a leading role), succeeded because they united under a common platform.   The rich countries were furious about how the poorer countries were able to unite. 

And Aldonas’s reaction is a symptom of this.  Unable to win his case through argument, he has resorted to personal attacks on the Ministers and senior officials for the jewelry they wore in Cancun!

There are, however, two major problems with his line of attack.

Firstly, it comes at a time when the US administration itself is under increasing attack within and outside the country for unprecedented cronyism it has shown not only to its friends by to its own senior members.  The recent criticisms are aimed precisely at the lack of transparency in US government procurement and contracts, and the granting of billions of dollars of contracts to companies linked to government leaders themselves.

Secondly, the opposition of developing countries to a new WTO treaty on government procurement is based on more serious grounds than the protection of corrupted turf of its policy makers.

At about the time Aldonas was making his “expensive jewelry” speech, the US media was awash was news that billions of dollars of contracts for the US reconstruction of Iraq and Afghanistan had been awarded to companies linked to the Bush administration and to election campaign donations.

The winners of the top 10 contracts for work in Iraq and Afghanistan had contributed about US$1 million a year to national political parties, candidates and political action committees (including Republicans and Democrats) in the U.S. since 1990, according to a study by the Centre for Public Integrity.

It found that private contractors receiving billions of dollars in reconstruction contracts contributed significantly to US President George Bush’s election campaign and stocked their staffs and governing boards with well-connected former federal officials, according to a news article in the Wall Street Journal on 31 October-2 November.

Dozens of companies that won contracts had contributed to political campaigns, with President Bush receiving more money that any other candidate since 1990.

The Centre found that more than 70 companies that won US$8 billion in contracts for work in Iraq and Afghanistan in 2002 and 2003 had contributed about US$49 million to political parties and committees.

“There is a stench of political favoritism and cronyism surrounding the contracting process in both Iraq and Afghanistan,” said Charles Lewis, director of the Centre.  “This is all outrageous.”

The Centre found that basic details were hard to obtain about the size and scope of contracts awarded by the Pentagon, State Department and US Agency for International Development (AID) and questioned the degree of oversight over the billions in spending.

According to the Wall Street Journal, the Centre’s allegations about a lack of transparency in the administration’s financial dealings with its contractors echoed complaints in the US Congress which recently approved a US$87 billion White House funding request for Iraq and Afghanistan.

Congress members have questioned how the US occupation authorities are spending US taxpayers’ money, and the General Accounting Office is examining how the postwar contracts were awarded.

The top two companies that won contracts were Halliburton and its subsidiary Kellogg Brown and Root or KBR (with US$2.3 billion of contracts) and Bechtel ($1 billion).

US Vice President Dick Chenney was CEO of Halliburton from 1995 to 2000.  George Shultz was Bechtel’s president for eight years before becoming former President Ronald Reagan’s secretary of state. 

According to another report in the Harper’s Magazine (November 2003), last March the US Army Corps of Engineers awarded the KBR subsidiary of Halliburton a contract, expandable to US$7 billion over two years, to provide for all the logistical and maintainence needs of the US forces in Iraq.

At the same time, the US AID gave Bechtel an initial contract of US$34.6 million to rebuild Iraqi power generation facilities, electrical grids, water and sewage systems and airports.  Bechtel will bill the US government for expenses up to US$680 million over 18 months.

“These open-ended contracts did not come about through competitive bidding but through backdoor deals guided by the Bush administration,” says the Harper’s report, “The War Business” by Chalmers Johnson.

“Whatever else may or may not have changed after 9/11, one thing has become clear:  munitions making and war profiteering have supplanted the energy and telecommunications deals pioneered by Enron and Worldcom in the late 1990s as the most efficient means for well-connected capitalists to engorge themselves at the public trough.

“To call these companies ‘private’ though, is mere ideology.  Munitions making in the US today is not really private enterprise.  It is state socialism.”

Other news reports have linked other senior officials or persons with close contacts with the Administration to previous, present and future potential deals relating to the Iraq, Afghanistan wars and the “war on terror.” 

The London-based Observer, in an article on 11 May 2003, gave some examples.  They include Defence Secretary Donald Rumsfeld (who was a director of ABB when it won a contract for two light water reactors to North Korea),  Richard Perle (member of the Pentagon’s Defence Policy Board, who is managing partner of Trirene which invests in companies dealing in products of value to homeland security), and James Woolsey (former CIA boss, member of the Defence Policy Board and a prominent “war hawk”) who is a director of Paladin Capital set up in the aftermath of September 11 as a business opportunity offering “substantial promise for homeland security investment.” 

Nine members of  the Pentagon’s influential Defence Policy Board have ties to defence contractors that won more than US$76 billion in defence contracts in 2001 and 2002, according to the Centre for Public Integrity, and quoted in the Observer.  

Given this situation, which has attracted such fierce criticism from mainstream America itself, it is the height of double standards for the US trade officials to imply that developing country government Ministers and officials are against a treaty on transparency in government procurement because their corruption evidenced by their wearing jewelry would be checked. 

There is a second reason to be skeptical about Aldonas’s attack on Third World corruption. 

It is true that corruption is rife in many developing countries, and much more transparency is sorely needed in the way governments transact their business – both in poor and rich nations. 

But this is not the real motivation of the major developed countries in pushing for a treaty on “transparency in government procurement” in the WTO.

As they have made clear, the rich countries want to open up the government procurement business, worth hundreds of billions of dollars, in developing countries so that their huge transnational companies can take over the contracts and business now given to local companies.

Most developing-country governments, when purchasing supplies or awarding contracts for construction and other projects, give a preference to locals, as a boost to local people and businesses and to the domestic economy.

The developed countries want these preferences to end, in the name of “free trade.”   They have thus proposed that an agreement on transparency on government procurement be established.  They are certain to then try to extend that treaty to cover “market access”, meaning that foreigners and their firms should have at least equal access to the government procurement business in the developing world.

The result of such a treaty would be to put an end to any advantage that local firms would have.  And a “level playing field” of this kind would mean a takeover by large foreign firms of a very large part of the domestic economy of developing countries.

Such a predatory move by the large foreign firms (some of them advantaged by  cronyism-related links to their own governments) would have serious adverse consequences for national development in developing countries.

Thus, these countries are right in resisting the rich countries’ attempts to start negotiations on such a treaty.  They should continue to unite and stick to their position in the WTO and defend their countries from such potential predatory attacks.

At the same time, developing countries should also put their own house in order and unilaterally introduce more transparent systems of government procurement and root out whatever corrupt practices exist.

The fact that the US administration is itself such a major practitioner of cronyism and practices double standards in accusing others of the same, should not stop us from cleaning our own house on our own accord.

 


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