U.S. Is Accused of Violating Pact in Iraq Bid Policy

Incensed that foreign countries were playing favorites in doling out billions of dollars to build airports, roads and dams, the U.S. became a prime cheerleader for a global agreement on government procurement.

Now, the U.S. stands accused of violating the very pact it worked so hard to create.

The Pentagon said last week that companies from France, Canada and other countries that didn’t contribute militarily to the Iraq war would be barred from bidding on $18.6 billion in U.S.-funded reconstruction contracts. That sent officials from excluded countries to their lawbooks, looking for ways to strike back.

The European Commission, which called the Iraq bid decision “ill-thought-out,” is considering filing a complaint with the World Trade Organization in Geneva. Under the WTO procurement pact for which the U.S. heavily lobbied, governments in most cases must open their purchasing processes to international competition and treat domestic and foreign firms equally.

Considering that, “I don’t think the U.S. position is sustainable,” Swedish Prime Minister Goran Persson said.

The contrast between the Bush administration’s free-trade rhetoric and its Iraq bid policy is fueling perceptions that the U.S. is an unreliable partner willing to undermine its international obligations. And the mushrooming ill will could lead to retaliation against U.S. firms abroad and make it tougher to resolve thorny trade disputes.

“This could become very contentious,” said James Steinberg, a Clinton administration security official and vice president at the Brookings Institution.

Even as foreign leaders congratulated the U.S. for its weekend capture of Saddam Hussein, they made it clear that they remained unhappy with the policy, which freezes out longtime European allies from bidding on the Iraq contracts while allowing such nations as Tonga, Iceland and Eritrea to go after the work.

In an interview Sunday on CNN, Germany’s ambassador to the U.S., Wolfgang Ischinger, said Washington was reopening old wounds.

“We want to move ahead together,” he said. “We have a stake in the ability and success of the mission in Iraq. We don’t want to sit on the fence, which is why many Germans, many Europeans are puzzled.”

On Monday, the Pentagon said it would reschedule for January a conference for companies that want to bid on 26 major contracts for rebuilding Iraq’s roads, ports and phone networks. That meeting -- initially set for last week -- was canceled after the bid dispute turned ugly.

After learning of the Iraq bid decision, the Russian defense minister said Moscow, Baghdad’s leading creditor, didn’t plan to participate in the U.S.-led effort to erase Iraq’s $125-billion debt. France, however, said Monday that it would work to restructure what Iraq owes it.

For his part, President Bush belittled the idea that his policy to limit bidding to 61 coalition supporters might violate America’s international obligations.

“International law? I better call my lawyer,” the president said last week. “I don’t know what you’re talking about.”

Prime Minister Tony Blair of Britain, which is a beneficiary of the U.S. policy, defended the right of Americans to “decide how to spend their own money.”

Not everyone sees it that way. Even if Bush’s decision doesn’t breach WTO rules, it “clearly violates the spirit and the intent of our world trade commitments,” said Steven Schooner, co-director of the Government Procurement Law Program at George Washington University.

Transatlantic trade ties were already strained. Two weeks ago, the Bush administration was forced to end steel tariffs that had triggered threats of billions of dollars in retaliatory tariffs. Last week, the European Commission approved a law to impose $4 billion in punitive tariffs on U.S. goods if Congress doesn’t rescind a special tax break given to U.S. exporters by March 1. A WTO panel declared the tax break illegal in 1999.

The Europeans also are gearing up to ask the WTO for permission to impose retaliatory tariffs against the United States for an anti-dumping law the WTO has said is illegal.

So far, the Europeans “have been highly restrained in responding” to U.S. trade actions deemed to violate international law, said Anthony Gooch, a spokesman for the European Commission in Washington. But the Iraq bid policy could change that, he said.

Unlike most WTO agreements, which cover all 146 member nations, the government procurement pact has been adopted by only 28 governments since the pact took effect in 1996. The signatories include the U.S., Canada, France and Germany.

U.S. officials insist that the Iraq bidding policy is legitimate under the pact because the Coalition Provisional Authority, the Baghdad-based group overseeing the reconstruction effort, isn’t subject to trade rules.

David Palmeter, a Washington trade attorney, said that argument might not fly if the contracts are awarded by U.S. agencies and paid for with U.S. funds. The WTO agreement was designed so that a government could not hide its purchasing “behind the skirts of another agency,” he said.

Palmeter said exemptions in the complex accord could give Washington legal cover for its bidding policy. Only government agencies, products or services specifically named by each signing country are covered by the pact. Although the Defense Department is on the U.S. list, there is an exception for purchases related to the protection of national security and for services procured for troops overseas.

“This is incredibly complicated,” Palmeter said. “There will probably be a WTO case and it could be a mess.”