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Germany talks tough, France holds fire

Paris, Dec. 10 (Reuters): France and Germany responded defiantly today to a US decision to bar their firms from competing for prime contracts to rebuild Iraq, a move which could open a new rift in troubled transatlantic relations.

The US unveiled plans yesterday to limit competition for 26 reconstruction contracts in Iraq worth up to $18.6 billion, excluding countries such as Germany, France and Russia which opposed the war.

France said it would study whether the US move was legal and Germany said it could not accept the American decision.

“That would not be acceptable for the German government. And it wouldn’t be in line with the spirit of looking to the future together and not into the past,” a spokesman for German Chancellor Gerhard Schroeder said in Berlin.

He did not say what action Germany might take.

In an apparent effort not to sharpen the brewing diplomatic row with Washington, President Jacques Chirac, foreign minister Dominique de Villepin and other ministers avoided reporters’ questions after a cabinet meeting.

But a foreign ministry spokesman said France and its partners — an apparent reference to Germany — were studying the legality of the US decision. “We do not wish to comment at this stage,” foreign ministry spokesman Herve Ladsou said in a statement.

“We are studying the compatibility of these decisions with international competition law together with our partners that are involved, notably in the European Union and the European Commission,” he said, giving no other details.

In a policy document released yesterday, US deputy defence secretary Paul Wolfowitz cited national security reasons for limiting competition for the prime contracts in Iraq. Firms from other countries can compete for sub-contracts.

The decision should go some way to placating countries such as Britain, Italy and Spain which provided troops to Iraq but whose firms were excluded from deals that went to US firms.

The contracts cover electricity, communications, public buildings, transport, public works, security and justice. The decision is a new irritant in the relationship between the US and other European countries, already dogged by differences over trade, defence and other issues.

US President George W. Bush eased some of the friction last week by scrapping controversial steel duties he had imposed to protect US producers, prompting the EU to say it would no longer strike back with retaliatory sanctions.

But mistrust remains on other trade issues and the creation of a European Union defence force to operate independently of Nato.

France and Germany want the EU force to have a military headquarters independent of Nato. Washington opposes this.

Schroeder has recently visited the US twice in an effort to repair political and business ties with Washington.

US relations with France, which has a vision of a “multipolar” world which appears to run counter to the US role as the world’s only superpower, remain troubled.

Those relations could be further strained by a fraud case involving the acquisition by French bank Credit Lyonnais of the assets of failed US insurance company Executive Life in 1991.

Under US law at the time, banks could not own insurers, and under state law foreign governments were banned from owning California insurers. Credit Lyonnais was owned by the French government at the time of the Executive Life acquisition.

Failure to reach a settlement could push France into a long and costly court battle and sour ties with the United States.

A US military transport plane was forced to return to Baghdad’s international airport after an explosion in one of its engines shortly after takeoff, the US military said today.

A spokeswoman at the airport said the cause of the incident yesterday was under investigation.

“Yesterday morning at 0100 GMT a C-17 plane declared an in-flight emergency shortly after takeoff. There was an explosion in one of its engines, but it returned safely,” said the spokeswoman.

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