U.S. Bid Policy Elicits Outrage

Facing outrage from Europe, Russia and Canada, the Bush administration Wednesday appeared to soften its decision to ban countries that did not support the war in Iraq from seeking $18.6 billion in prime contracts to rebuild the nation.

President Bush phoned the leaders of France, Germany and Russia and promised to “keep lines of communication open” to discuss which countries would be allowed to bid, a White House official said. Bush had placed the calls to urge them to help restructure Iraq’s massive debt, but that seemed less likely given the anger over the policy.

White House officials insisted that their policy of excluding antiwar nations from choice business deals in Iraq was unchanged. But they said they would be flexible in deciding which countries had done enough to qualify.

At a briefing, a senior defense official said the roster of 63 eligible countries “is not a fixed, closed list.... This is an open list. We’re always going to reevaluate.”

The official suggested that a country might qualify for the list simply by declaring itself a member of the Iraq coalition, a step that such war opponents as France and Germany might find politically unpalatable.

Officials made no mention of such flexibility when they disclosed the policy Tuesday. Though everyone would be eligible to become a subcontractor, the policy of blocking Russia and many European countries from seeking a prime contract touched a political nerve, and European opponents argued that the U.S. policy might violate international trade rules.

The U.S. action on contracts reopened wounds from the run-up to the war, which began March 20. Trying to minimize the effect, White House officials noted that the directive applied only to the $18.6 billion in U.S. reconstruction aid and not to an additional $13 billion pledged by countries during a conference in Madrid, or to any other funds that might come through international organizations or to subcontractors.

But antiwar countries complained that the Bush administration, despite its recent appeals for international help in rebuilding Iraq, had punished them by denying access to lucrative projects.

Russia warned that the U.S. could endanger any chance that Moscow might comply with Washington’s requests to restructure the $8 billion that Iraq owed Russia. France said it would look into the legality of the U.S. move. Germany called the Pentagon directive “unacceptable” and an example of “extremely selfish economic lobbying.”

“Nothing is left of the promises in recent weeks to concentrate on the future rather than looking into the past,” declared an editorial in Germany’s Maerkische Oderzeitung newspaper to be published today. “The recent call by top U.S. politicians for NATO commitment in Iraq appears to be insolence in light of the Pentagon order on contract bids. Washington cannot really believe that Berlin and Paris will first be punished and then go into battle with all flags flying.”

Canada, which opposed the war but has given about $230 million to Iraq since then, said it would cut off aid if Canadian firms were barred from bidding for reconstruction contracts.

Paul Martin, who takes office Friday as Canada’s prime minister, called the decision “very difficult to fathom.” Canada has supplied the largest number of non-U.S. troops to Afghanistan, freeing up American forces for Iraq, he said.

“I understand the importance of these kinds of contracts, but this shouldn’t just be about who gets contracts, who gets business,” Martin told a news conference Wednesday. “It ought to be: What is the best thing for the people of Iraq.”

A senior U.S. official said discussions were underway with the Canadians about whether they deserved to be on the list. Another official, who also asked to remain unidentified, said he believed that “Canada may be added, at some point down the line.”

The policy limiting 26 prime contracts to companies from coalition nations and Iraq became public Tuesday in a memo signed by Deputy Defense Secretary Paul D. Wolfowitz. Critics overseas regard Wolfowitz as a leader of U.S. neoconservatives with a perceived hawkish disdain for international institutions and multilateralism.

The Wolfowitz memo said it was necessary to limit eligibility to protect “the essential security interests of the United States.” Officials said this language was added because it was needed, under federal law, to provide a rationale when government contracting was not conducted in “full and open” competition.

U.S. officials said they were surprised that the release of the memo had been greeted with such an outcry, because the administration had signaled its intentions several times earlier. Officials also said they had indicated their plans in congressional testimony, as well as in conferences with potential contractors last month in Washington and London.

Russia’s foreign minister questioned whether Wolfowitz spoke for his government. “Individual politicians have made individual statements,” said Foreign Minister Igor S. Ivanov. “I don’t think, however, that one can judge the U.S. policy as a whole from them.”

During a meeting in Berlin with his German counterpart, Ivanov reminded journalists that the U.S. promised to relinquish power in Iraq as soon as possible. He said Russia “is forming its position on the basis of the U.S. president’s insistent statements to the effect that the U.S. presence in Iraq is temporary, and that the people of Iraq will decide the future of its wealth on their own.”

Russia has a keen interest in access to Iraq’s reconstruction projects. Because of what was perceived as Russia’s sympathetic political attitude, Russian companies had a substantial share of contracts awarded under the U.N. “oil-for-food” program in the 1990s. In the decades before, as much as 80% of Iraq’s military hardware was Russian-made.

The Kremlin has made it a priority to assure that contracts awarded to Russian companies before the war would be honored, among them a $6-billion contract signed with Lukoil, Russia’s second-largest energy company, to develop Iraq’s giant West Qurnah oil field.

“We have a vast experience of cooperation, and many of Iraq’s enterprises were built with Russian experience,” Ivanov said.

Ivanov also took the opportunity to signal that Russia had no plans to comply with U.S. requests to write off all or part of Iraq’s debt. “Iraq is not a poor country,” he said.

Relations between the U.S. and Russia are likely to suffer, said Andrei Kortunov of the Foreign Policy Assn. in Moscow.

“It will certainly weaken Russia’s motivation to continue to take into account the U.S. positions and actions to pursue their policy of pacifying Iraq,” Kortunov said. “But I don’t think this is the last word on the issue. After all, Iraq is not the 51st state of the United States yet. In the long run, positions on such issues will be determined by the new Iraqi leadership.”

Although France has vigorously criticized the U.S. occupation of Iraq, the government of President Jacques Chirac opted for a muted reaction Wednesday. French leaders have shown a tendency since the war to pick their battles with Washington, avoiding tough rhetoric unless they believed the timing called for it.

Foreign Ministry spokesman Herve Ladsous said Wednesday that he would not comment except to say France and other European Union countries were studying whether the U.S. directive was in accordance with “international competition law.”

The Bush administration’s action adds strain to bilateral trade relations already under pressure because of controversial measures to protect U.S. steelmakers and textile and apparel manufacturers. Last week, Bush lifted a tariff on imported steel that had been declared illegal by the World Trade Organization and triggered threats of billions of dollars in retaliatory penalties from the Europeans and others.

Some experts in procurement law said the U.S. move raised legal questions. Bruce Shirk and Jessica Abrahams, attorneys at the Washington firm of Powell, Goldstein, Frazer & Murphy, said they believed the decision might violate the WTO’s Agreement on Government Procurement. They said the policy “appears to be a rather abrupt change of course with regard to contracting for Iraq.”

But U.S. officials insisted that the agencies had reached a consensus that the policy didn’t violate WTO rules or any other international agreement.

U.S. firms operating abroad might lose contracts or face other forms of retaliation because of the backlash over the Iraq bidding process, warned Clyde Prestowitz, president of the Economic Strategy Institute in Washington. Those most likely to get caught in the fallout are large U.S. contractors, aerospace firms, consulting companies or others that compete for government contracts, he said.

“I think you have to expect some retaliation,” said Prestowitz, the author of “Rogue Nation,” a book detailing the rising costs of U.S. unilateralism. “What’s going to happen is, it’s not going to be visible, it’s going to be invisible.

“U.S. companies are going to find out they’re not getting certain contracts, and they’re going to wonder why.”

Rotella reported from Paris and Richter from Washington. Times staff writers Maggie Farley at the United Nations, Jeffrey Fleishman and Christian Retzlaff in Berlin, Evelyn Iritani in Los Angeles, Kim Murphy in Moscow and Maura Reynolds in Washington contributed to this report.