Trade agreement with China .. What is waiting for Iraq?
Iraq lives in an embarrassing economic situation, after exiting from its violent war against the terrorist organization ISIS, and the displacement and destruction that these wars left behind have depleted the country’s material capabilities, which need comprehensive reconstruction, in light of a federal budget that suffers from deficit and accumulated debts 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 He is suffering from financial and administrative corruption and the precarious 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” is experiencing due to the “American-Iranian” conflict and the government between the pro Yen 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?
He sees some independent politicians who confirmed that the agreement will inflict fraud on Iraq and mortgage its oil for fifty years, and independent politician Laith Shubbar said, “The signing of the agreement by an independent government and its implementation reflects the existence of suspicions of corruption.”
To get acquainted with the terms of the agreement between Iraq and China:
- The agreement without penal terms and falls within the friendship agreements. In the event of a dispute, the recognized international arbitration bodies are resorted to.
- The term of the agreement is 20 years.
- 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.
- The Chinese party guarantor of the agreement is the Chinese Insurance Corporation (SINO Shore), which is the supreme governmental organization.
- The revenues of 100 thousand barrels per day of oil sold to China, specifically for the Chinese (Zinhua and Sinoc) companies, shall be seized, and the revenues of this oil shall be placed in the Iraqi-Chinese fund.
- The credit limit of Chinese banks to the Iraqi-Chinese fund is $ 10 billion, with interest subsidized by the Chinese government.
- If the first package of projects succeeds, and Iraq desires to increase investment, the ceiling for Iraqi oil sales will be raised to 300,000 barrels per day, and China will increase the borrowing ceiling to $ 30 billion.
- The amount is deposited with a bank (steak 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: investment account
9 An account is created in the name of the debt service account (repay account) and it is devoted to support the interest rate, and its amounts are deducted from the investment account.
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- The fund includes the coverage of the following projects:
- Building schools
- Paving external roads
- Treating pollution of the Tigris and Euphrates Shatt Al Arab
- Building housing complexes
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).
- The Council of Ministers chooses the above projects, and signs a one-time contract, for example: a contract is signed to build two thousand schools with an open contract called an open contract
- The Iraqi oil money started depositing on 01/10/2019, and the amount of half a billion dollars has accumulated so far, With China ready to deposit 10 billion dollars, it was hoped that the first projects would be chosen these days, but the government would turn into a caretaker government that stripped it of the power to sign.
- Iraq has the right to choose international European, American companies to be partners with China, according to the type of project.
With regard to China, the 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 the technology needs a market for its disposal, and the Iraqi side is also looking for allies with high technological capacity, Significant liquidity, and countries with a difference in the exchange rate against the dollar, makes the work value greater than the paper value of domestic money.
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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 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 the global economy.
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 I thought that they are almost free loans, but some consider negative, as he considered those loans very costly economically, and may work to curb these countries because they are related to the Chinese economy, and thus mortgage their future for 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 covet 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 in danger:
Kenya is also forced to mortgage the largest and most important port in the “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 he 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.
Therefore, everyone, and 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 the implementation of the projects expected for the rise of Iraq again, otherwise such contracts will become obsolete on Iraq and increase its dumping of debts and dependency on other countries. Source