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Allies angered by U.S. decision on Iraq contracts

WASHINGTON—The Bush administration's decision to shut non-coalition countries out of $18.6 billion in Iraq contracts opened a new rift with Canada and Europe on Wednesday.

Several countries questioned the move, and the European Union said it would review the decision to determine if it violated commitments made by the United States in international trade agreements.

Europeans excluded from bidding are "not happy," said one top State Department official, speaking on condition of anonymity to describe the behind-the-scenes contacts. "The Europeans are asking pointed and somewhat anxious and occasionally angry questions about it."

"We noted this news with amazement today, and we'll talk with the American side about it," said German Foreign Minister Joschka Fischer, who telephoned Secretary of State Colin Powell to discuss the issue.

"I find it really difficult to fathom," incoming Canadian Prime Minister Paul Martin said at a news conference. "This isn't just about who gets contracts, who gets business. It ought to be: What is the best thing for the people of Iraq and how are we going to participate in that?"

The decision, announced Tuesday, underscored President Bush's controversial foreign policy strategy of building support for American initiatives by rewarding friends and, in effect, penalizing others.

President Bush called French President Jacques Chirac, German Chancellor Gerhard Schroeder and Russian President Vladimir Putin, whose companies were among those barred, to discuss his decision. The White House press office would not comment on what Bush said.

Companies from 62 cooperative countries, including Iraq and coalition allies such as Great Britain, will be allowed to bid on 26 contracts to rebuild Iraq.

"These countries have been with us from day one," said White House spokesman Scott McClellan. "These are the countries that are contributing forces that have been making sacrifices. And that's why this decision was made."

Critics favor a more diplomatic approach of trying to reach a consensus with allies in Europe and elsewhere on issues such as Iraq. They suggested that the decision on contracts would only hinder the administration's attempts to persuade more countries to join the U.S.-led postwar effort in Iraq and to relieve Iraq of its foreign debts.

"This just exacerbates the tension," said Robert Hormats, vice chairman of Goldman Sachs and an assistant secretary of state in the Reagan administration.

But the two-page decision on the contracts said: "Limiting competition for prime contracts will encourage the expansion of international cooperation in Iraq and in future efforts." Deputy Defense Secretary Paul Wolfowitz, a leading foreign policy hawk, signed the dictum.

State Department spokesman Richard Boucher said the department signed off on the decision, which was agreed upon recently by a senior inter-agency panel called the Deputies' Committee. But the policy was clearly driven by the Pentagon, which has taken on an unusually aggressive foreign policy role under Bush.

Officials, who requested anonymity, portrayed Powell and the State Department leadership as unenthusiastic at best about the new policy, but unwilling to provoke a major interagency war over it.

The policy could complicate a major new U.S. drive, led by former secretary of state James A. Baker III, to reduce Iraq's crushing debt load, estimated at $125 billion. France, Germany and Russia hold some of that debt.

"As far as I am informed of the position of the Russian government, we are not going to write off any debts," Russian Defense Minister Sergei Ivanov said. "Iraq is not a poor country." He declined to comment on the decision on contracts.

One French official said France would work with the European Union to determine if the decision violated global trade rules.

Under trade pacts, members of the World Trade Organization, including the United States, have agreed to open many of their government contracts to foreign competition.

Not all contracts are covered, however.

A spokesman for Bush's trade representative said Wednesday that the Coalition Provisional Authority—the U.S.-led occupation that is overseeing the contracts—isn't covered by those agreements.

As well, governments can seek exemptions from global trade rules when national security is involved.

Wolfowitz's written decision justified the move "for the protection of the essential security interests of the United States."

A European expert on government procurement questioned that reasoning.

"Would the United States consider it against national security if (German firm) Siemens or a French firm were awarded the contract?" asked Martin Trybus, a visiting scholar at George Washington University law school in Washington. "Would that really undermine the national security of the United States or does it have a different background?"

But Trybus and an international trade lawyer added that the WTO would probably be hesitant to challenge a country on what is in that country's national security interest.

"If the U.S. chose to use that option, I would be shocked if the WTO panel challenged that," said Greg Mastel, a former chief international trade adviser to Democrats on the Senate Finance Committee.

Some Canadians believe that the decision on the contracts was intended to punish Canadian Prime Minister Jean Chretien, a critic of the administration's handling of the war in Iraq. Chretien leaves office Friday, replaced by Martin.

"We appreciate the contributions that Canada has been making in the war on terrorism," McClellan said. "We will look forward to visiting with Canadian officials about the concerns that they have."

Canada provided troops for the war in Afghanistan and is giving $300 million for the Iraq rebuilding effort. Four Canadian soldiers were killed and eight others were wounded in a "friendly fire" incident near Kandahar in April 2002 when a U.S. Air Force plane mistakenly dropped a 500-pound bomb on them.


(Knight Ridder correspondent Bill Douglas contributed to this report.)


(c) 2003, Knight Ridder/Tribune Information Services.

GRAPHIC (from KRT Graphics, 202-383-6064): 20031210 USIRAQ CONTRACTS