Trade agreement with China… What is waiting for Iraq?

Trade agreement with China… What is waiting for Iraq?

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Researcher Shatha Khalil *

Translated by : mudhaffar al-kusairi

Iraq lives in an embarrassing economic situation, after emerging from its violent war against the terrorist organization ISIS, and what has been left by these wars from the displacement and destruction of the infrastructure, as it drained the country’s material capabilities, which need comprehensive reconstruction, in light of a federal budget that suffers from deficit and debt accumulated in trillions of dinars .

The Iraqi government took a step towards reform by signing a comprehensive trade agreement with the Chinese government on September 23, 2019, in Beijing, representing a new economic stage in the reconstruction of infrastructure for Iraq, within a program that can be called oil for reconstruction, as Iraq is one of the most important sources of supplying crude oil to the People’s Republic of China, with an export between 750 thousand barrels to one million barrels per day, and the trade balance between the two countries is not less than 30 billion dollars annually thanks to the momentum of merchandise imports from China.

Here, the opinions of the observers on these agreements were divided between a supporter and a critic, which is concluded with the second largest economic country in the world, possessing advanced technology, and giant companies, which can contribute to revitalizing the economy and improving services in Iraq, but is Iraq eligible for those contracts at the time it is suffering from financial and administrative corruption and the unstable political situation, in addition to the internal crises, from the protests and the consequences of the killing of the Iranian Revolutionary Guards Commander, Qassem Soleimani, on the street, and the tension that “Iraq” lives due to the “American-Iranian” conflict and the government between the loyalists to Iran and among those rejecting its presence in Iraq, and what may be caused by the international financial sanctions by the American Federal Bank .. We mentioned this in a previous article … The question that arises in this circumstance.. Is the land of Iraq fertile for the start of investments?

Some independent politicians see and confirmed that the agreement will cause a damage on Iraq and mortgage its oil for fifty years, and independent politician Laith Shubbar said, “The signing of the agreement by an resigned government and its implementation reflects the existence of suspicions of corruption.”
To get acquainted with the terms of the agreement between Iraq and China:
1. The agreement is without penal terms and falls within the friendship agreements. In the event of a dispute, to resort to the recognized international arbitration bodies.
2. The term of the agreement is 20 years.
3. The Iraq-China Fund for Reconstruction is established, supervised by the Iraqi government and a guaranty consulting firm, and is chosen by the central bank among the top five largest global companies.
4. The Chinese party guarantor of the agreement is the Chinese Insurance Corporation (SINO Shore), which is the supreme governmental organization.
5. The revenues of 100 thousand barrels per day of oil sold to China shall be seized , specifically for the two national Chinese companies (Zinhua and Sinoc) , and the revenues of this oil shall be placed in the Iraqi-Chinese fund.
6. The credit limit of Chinese banks to the Iraqi-Chinese fund is $ 10 billion, with interest subsidized by the Chinese government.
7. If the first package of projects succeeds, and Iraq desires to increase investments, the ceiling for Iraqi oil sales will be raised to 300,000 barrels per day, and China will increase the ceiling of borrowings to 30 billion dollars.
8. The amount is deposited with a bank (stk bank), then the bank transfers the account to the American Federal Reserve Bank in New York, which oversees the total Iraqi oil sales, and there is an Iraq account of sales, then the amount is transferred to a new account called the investment account
9. An account is created in the name of the debt service account (repay account) and it is allocated to support the interest rate, and its sums are deducted from the investment account.
10. The fund includes the following projects:
. Airports
. Building schools
. Paving the external roads
• Railway
• Treating the pollution of the Tigris and Euphrates and Shatt Al-Arab
.Building housing complexes
.Infrastructure projects
• Energy and desalination projects
• Other projects as requested by the Iraqi government

If the cost of one of the projects above is one billion dollars, then the amount is taken from the fund by (850 million dollars from China and 150 million dollars from Iraqi oil sales).
11. The Council of Ministers selects the above projects, and signs the contract for one time, for example: A contract is signed for building two thousand schools with an open contract called an open contract.
12. The deposit of Iraqi oil money started on 01/10/2019, and accumulated an amount of half a billion dollars so far, with China ready to deposit 10 billion dollars, and it was hoped that the first projects would be chosen these days, but turning the government into a caretaker government , stripped it of the power to sign .
13. Iraq has the right to choose international European, American companies to be partners with China, according to the type of project.

According to the China agreement:
The agreement is not without a political dimension, since China is searching for allies in the region, but the economic dimension is clear. The Chinese money is looking for its investments, and technology needs a market for its disposal, and the Iraqi side is also looking for allies who have high technological capacity, great liquidity, and countries that have a difference in the exchange rate against the dollar, which makes the value of the work greater than the paper value of domestic money.

China has great seriousness in making investments inside Iraq, for a reason that differs from the United States ’approach to Iraq, as the US’s political orientation is intended to create a state of balance in the Middle East region, whether politically or militarily, unlike China, which has commercial allies in the region, as a result of its flexible policy.

China is moving at a deliberate and steady pace to become the largest empire in the world to compete with the United States by building a new world order, and it is working through a very huge economic initiative called “Belt and Road” to expand economically and globally .

As it has spent more than three hundred billion dollars on this project, and China plans to spend an additional trillion over the next ten years.

Many are the countries that have shown a positive view towards Chinese money, and they thought that they are almost free loans, but some see it negatively , as they considered those loans very costly economically, and may work to tie these countries due to its connection to the Chinese economy, and thus mortgage their future to Chinese companies.

If we take an example of these (negative) investments in Sri Lanka, where its strategic location on the busiest shipping line between East Asia, the Middle East and Europe, it has made it a great greed for China, which lavished on this small country with about eight billion dollars at an interest rate of 6.3%, which is a percentage High compared to the World Bank, whose interest ranges between 0.25% and 3%.

As a result, China obtained 85% of the share of the “Hambantonta” strategic port with a 99-year contract, in addition to about 15,000 acres close to the port as an industrial zone.

Mombasa port is at risk:
Kenya was also forced to mortgage the largest and most important port in “Mombasa Port” for the Chinese government, due to its accumulated loans, as the debt amounted to more than $ 5.5 billion, which places Kenya among the countries most vulnerable to losing strategic assets in favor of Beijing.

Finally … the question remains for the Iraqi officials who signed these agreements, what if Iraq faltered in repaying China’s debts, does it have thoughtful plans and alternative plans to ensure the sovereignty of the country’s economic and political independence, what will it do while suffering for years from great corruption, and comes in the 12th place among the most Corruption in the world, according to the latest report of Transparency International Organization.

Therefore, everyone, especially the concerned parties, must impose security and political stability and work to achieve peace in the Iraqi street, in order to ensure a serious start in implementing the expected projects for the rise of Iraq again, otherwise such contracts will become a curse on Iraq and increase its dumping of debts and dependencies to other countries.

Economic Studies Unit
Rawabet Center for Research and Strategic Studies