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EU, US Spar Over Iraq Contract Bidding Process - 2003-12-10

A new dispute has opened between Europe and the United States over a decision by the Pentagon to bar countries that opposed the U.S.-led war in Iraq from bidding on billions of dollars worth of Iraqi reconstruction work. Angry European nations and Canada say the move could violate world trade rules but the Bush administration is defending the decision as appropriate.

This decision by the Pentagon could see France, Russia and Germany, three nations with companies that have been operating in Iraq for decades, loose hundreds of millions of dollars in Iraqi reconstruction projects. Germany calls the move unacceptable. Russia is threatening to cancel Iraqi debt restructuring, while Canada is raising the idea of suspending new Iraqi aid all together.

“I understand the importance of these kinds of contracts,” said Paul Martin, Canada's incoming prime minister. “But I don't think this should be just about who gets contracts, who gets business. It ought to be what is the best thing for the people of Iraq.”

The dispute was set off by a directive issued by Deputy Defense Secretary Paul Wolfowitz limiting competition for lucrative Iraqi contracts to American companies or those from coalition members or nations that have contributed troops. In a memo dated December 5, he says it's intended to encourage more countries to take part in the coalition, something the Bush administration has been asking for but with only limited success.

“We felt we were slapped and now we're slapping back,” said Richard Murphy, a former U.S. Assistant Secretary of State for the Middle East. “I see it as a small act of retaliation on our part for the lack of cooperation as we see it on the part of the other capitals.”

Early this year, Secretary of State Colin Powell warned European countries opposed to the looming war in Iraq there would be 'consequences' if they used their votes at the United Nations to block U.N. support for the invasion that toppled Saddam Hussein. But this is the first time such a senior member of the Bush administration has actually backed up that threat so publicly with substantial action.

White House spokesman Scott McClellan firmly defends the decision, calling it appropriate.

“Those countries who have been working with the United States and contributing forces to the efforts in Iraq would be the ones who would be eligible for the prime contracts,” he said. “We are talking about U.S. taxpayer dollars here.”

The biggest companies operating in Iraq since the war have all been American with critics charging contracts have been awarded to Bush donors and without competition.

France and Germany were among countries that refused to offer contributions to Iraq's reconstruction at a donors' conference in October in Madrid and have also refused to send troops.

The Bush administration says countries seeking a role in Iraq but cut out of the U.S.-administered contracting process can do so by sending troops or by donating aid. But the European Union is now taking up the dispute to see if the U.S.- imposed restrictions on Iraqi contracts violate world trade rules.