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EU, Canada Criticize Exclusion From Iraq Rebuilding Contracts

Dec. 10 (Bloomberg) -- Canada and Germany said the U.S. decision to limit bidding for Iraqi reconstruction contracts to companies from countries that backed the U.S.-led war will hamper efforts to round up international support to rebuild the country.

With the European Union, they said they will look into whether the U.S. is breaking trade rules by barring critics.

Canada, Germany, France, Mexico, China and Russia are among countries excluded from bidding on $18.6 billion worth of Iraqi reconstruction contracts funded by the U.S. government. U.S. Deputy Defense Secretary Paul Wolfowitz released the list of 63 approved countries yesterday.

Excluding opponents of the war contradicts the stated U.S. goal of seeking help from as many countries as possible to rebuild Iraq, Canadian Deputy Prime Minister John Manley said.

``There certainly wasn't any hesitation in putting us on the list of countries from which they sought donations for the rebuilding of Iraq,'' Manley, reached by telephone during a visit to Paris, said.

``We've contributed significant sums to the reconstruction, as well considerable military means and manpower to the war against terrorism,'' Manley said. ``It's going to be very difficult to justify these commitments to Canadian taxpayers if Canadian companies are going to be excluded.''

European Commission spokeswoman Arancha Gonzalez said the decision may break World Trade Organization laws on public procurement.

WTO Rules

``We are examining each of the 26 contracts to assess whether they comply with the WTO rules and the U.S.'s obligations under the government procurement agreement,'' Gonzalez said in an interview. Manley said Canada would also look into the legality of the U.S. order.

France is ``studying whether this decision is compatible with international competition law with our partners, particularly in the European Union and the Commission,'' French Foreign Ministry spokesman Herve Ladsous said in a statement on the ministry Web site.

German Foreign Minister Joschka Fischer said at a press conference in Berlin, ``we noted this report with astonishment and will talk about it with the American side.'' German government spokesman Bela Anda said the list ``is not acceptable.''

European companies declined comment. France's Alcatel SA, which built most of Iraq's telephone network in the 1980s, and Germany's Hochtief AG, which has built dams there, said they had no comment. Paris-based Vinci SA, the world's largest construction company, has said it isn't interested in bidding on contracts in Iraq until there is greater security and a legal framework to sign contracts.

`Politically Inept'

Wolfowitz is ``hitting the wrong target,'' said Michael Rogowski, head of Germany's BDI industry federation, which represents 107,000 companies including Siemens AG and DaimlerChrysler, in a Bloomberg TV interview. ``I think this is politically inept.''

A Chinese official said he isn't surprised. ``We have been picking up vibes for a long time that Chinese companies would have a hard time securing contracts in Iraq,'' said Li Zijing, a Beijing-based official China International Contractors Association. ``It's political so there's nothing very much we can do about it. We think it's going to be quite hard getting contracts for the first phase, we are now pinning our hopes on the second phase.''

The list doesn't just exclude open opponents of the war. Sweden, Ireland, Austria, and Finland, all neutral countries, are also out. Of the 15 European Union states, only six are approved. They are the U.K., Italy, Spain, Portugal, Netherlands, and Denmark. All have sent soldiers or police forces to Iraq.

Tonga Approved

While the approved list has industrialized countries such as Japan, South Korea, Turkey and Australia, it also includes Palau, Micronesia, Tonga, Rwanda, the Solomon Islands, and Angola.

The exclusions contrasted with recent signals that the U.S. was seeking to mend relations with countries that opposed the war, said Francois Gere, director of Paris-based research group Institute of Diplomacy and Defense.

``This seems to be a total contradiction with the U.S. government's stated aim of internationalizing Iraq's reconstruction and seeking help from as many countries as possible,'' Gere said. ``If they want a global effort, then they have to provide some incentives.''

U.S. Secretary of State Colin Powell met with European leaders last week in Brussels to seek a greater role for North Atlantic Treaty Organization members in Iraq and Afghanistan. At the same meetings, Defense Secretary Donald Rumsfeld was uncharacteristically mild about plans to set up EU military planning capabilities outside NATO.

Lack of Coordination

Gere said the list of approved countries seems to reflect divisions within the U.S. government. ``There's a lack of coordination within the administration when the Secretary of State tries to internationalize the Iraqi effort and then the Pentagon comes out with this list,'' Gere said.

Canada's Manley, who is also Finance Minister, said he's had mixed signals from Washington. ``I have had many conversations with Secretary Snow and he has always expressed satisfaction with Canada's contributions,'' said Manley, referring to U.S. Treasury Secretary John Snow. Canada says it's contributed $300 million to Iraqi reconstruction efforts.

At an aid donors' conference in Madrid in October, Germany and France didn't commit extra funds to Iraq beyond the 200 million euros ($240 million) pledged by the EU, to which they are the largest funders.

Russian Foreign Minister Igor Ivanov suggested yesterday's list wasn't final. ``These are single statements by individual politicians,'' he said at a joint press conference with Fischer. ``We can draw no conclusions from these about the U.S.''

`What Planet?'

In a letter accompanying the list, Wolfowitz said that ``limiting competition for prime contracts will encourage the expansion of international cooperation in Iraq and future efforts.'' Steven Everts, a security analyst at the Center for European Reform in London, said that's likely to backfire.

``What planet does Wolfowitz live on?'' said Everts. ``You could say that this is U.S. tax money and they can spend it as they like, but don't try to pretend that this is a ploy to get more support. It's just going to be seen as spiteful.''

It's also unclear whether the U.S. restrictions are justified on grounds of national security, the EU's Gonzalez said.

The U.S. has taken countries such as South Korea to the World Trade Organization for blocking foreign companies from bidding for government contracts.

`Burden of Proof'

``The U.S. has the burden of proof,'' said Konstantin Adamantopoulos, a trade lawyer with Hammonds in Brussels. ``The national security link has to be clear and proportionate and must not be disguised protectionism, otherwise they make themselves vulnerable under government procurement rules to which both the U.S and EU are parties.''

``It will boil down to the sector concerned,'' said Adamantopoulos. ``If they want to construct a bridge to link two villages, is this a matter of national security? On the other hand there may be a case if it's about supplying arms to a new Iraqi army. It can't be a blanket approach in which all public procurement contracts are excluded.''

Last Updated: December 10, 2003 09:33 EST


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