The United States faces growing anger over its decision to bar some of its biggest trading partners from bidding for Iraqi reconstruction projects.

German Chancellor Gerhard Schroeder with U.N. Secretary-General Kofi Annan on the contracts issue: "It makes little sense to discuss who can and who cannot individually participate economically in reconstruction." [AP Photo]

Countries that did not back the U.S.-led coalition that toppled Saddam Hussein this year will not be eligible to compete for US$18.6 billion worth of contracts, according to U.S. Deputy Defense Secretary Paul Wolfowitz.

German Chancellor Gerhard Schroeder said Thursday that international law must apply to the awarding contracts.

At a news conference in Berlin with U.N. Secretary-General Kofi Annan, Schroeder said it was the task of all countries to help with reconstruction in Iraq.

"It makes little sense to discuss who can and who cannot individually participate economically in reconstruction," he said. "International law must apply here, and it does not help things to look backward. ..."

Annan called the decision "unfortunate."

"I believe it is time for us to work together to try to stabilize Iraq," Annan said. "Our decisions should be unified rather than divisive, and I think we would not characterize the decision taken yesterday as unified."

U.S. President Bush, speaking to reporters at a Cabinet meeting in Washington on Thursday, said, "The U.S. people, the taxpayers, understand why it makes sense for countries that risk lives to participate in the contracts in Iraq. It is very simple. Our people risk their lives. Coalition, friendly coalition folks risk their lives -- and therefore the contracting is going to reflect that and that is what the U.S. taxpayers expect."

Bush went on to describe the contracts as a reward for risk: "Make sure everybody understands that men and women from our country, who proudly wear our uniform, risked their life to free

Iraq," he said. "Men and women from other countries in a broad coalition risked their lives to free Iraq. And the expenditure of U.S. dollars will reflect the fact that U.S. troops and other troops risked their life."

The European Commission said it will investigate whether the U.S. action complies with global trade rules, according to The Associated Press.

France too said it will study the U.S. position in light of international law.

Russia Defense Minister Sergei Ivanov was quick to point out his nation was still owed US$8 billion from Iraq.

On Wednesday, a Pentagon spokesman said a postponement of bidding for 26 contracts, which was set to begin this week, was unrelated to the controversy over restrictions on which countries may compete for the deals.

Meanwhile, President Bush spoke with the leaders of Germany, France and Russia, promising to "keep the lines of communication open," a National Security Council spokesman said.

But other U.S. officials said the policy would change only if nations opposed to the war offered more financial and diplomatic support for post-war Iraq.

In Ottawa, incoming Canadian Prime Minister Paul Martin said the decision was difficult to understand because his country already spent US$300 million to support Iraq and also has troops in Afghanistan.

"I find it really very difficult to fathom," said Martin, who will take the helm of Canada's government Friday from Prime Minister Jean Chretien.

"There's a huge amount of suffering going on there, and I think it is the responsibility of every country to participate in developing [Iraq.]"

According to Wolfowitz's memo posted last week on a Pentagon Web site, countries that either participated in the coalition effort or supported it -- including Britain, Australia, Spain, Italy, Poland, Turkey and Japan -- were on the list of nations that could be awarded primary rebuilding contracts.

White House spokesman Scott McClellan said the decision was "totally appropriate."

"The United States and the coalition countries, as well as others that are contributing forces to the efforts there and the Iraqi people themselves, are the ones that have been helping and sacrificing to build a free and prosperous nation," McClellan said.

"I think it is totally appropriate for U.S. taxpayers' dollars to go to the entities I just mentioned."

U.S. State Department spokesman Richard Boucher added that while the prime contracts would go to coalition members, those companies could choose their own subcontractors.

"Subcontracting is open to companies from virtually all nations in the world," Boucher said.

In his memo, Wolfowitz said the list was restricted due to security concerns.

While "international support and cooperation are necessary for progress in Iraq, Wolfowitz said, it is "in the public interest" to limit the countries that can compete for contracts.

(Courtesy to Cnn.com)

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