U.S. President Bush makes a point as he talks to the press after the last cabinet meeting of the year in the West Wing of the White House Dec. 11, 2003.   [Reuters]

U.S. President Bush on Thursday rejected criticism of his bar on Iraq war opponents winning lucrative reconstruction contracts, but signaled flexibility as Germany and others demanded a rethink.

"It's very simple. Our people risked their lives. Friendly coalition folks risked their lives and...the contracting is going to reflect that...that's what the U.S. taxpayers expect," said Bush, as the bar threatened fresh international rifts.

White House spokesman Scott McClellan suggested, however, there was room for some flexibility when asked whether countries that helped erase Iraqi debt could qualify to win contracts from $18.6 billion of U.S. reconstruction funding.

"If countries want to join in our efforts in Iraq...then circumstances can change, and we'll make that very clear," McClellan told reporters.

Outgoing Canadian Prime Minister Jean Chretien, who refused to send troops to join the war in Iraq because the fighting was not approved by the United Nations, said Bush told him in a farewell conversation "not to worry."

TIME's cover art portrays a photo illustration of U.S. President George W. Bush with a lipstick-kiss on his right cheek, and a bruised left-eye for its Dec.1, 2003 edition released on Nov.23, 2003. [Reuters]

Bush has tasked former Secretary of State James Baker to leave on Monday for a mission to war critics France, Germany and Russia, as well as supporters Italy and Britain, to seek restructuring for Iraq's $120 billion of foreign debt.

"If these countries want to participate in helping the world become more secure, by enabling Iraq to emerge as a free and peaceful country, one way to contribute is through debt restructuring," Bush told reporters.

Germany, France and Russia are among Iraq's biggest creditors and their cooperation would be needed for large debt reduction.

SCHROEDER CALLS BUSH

Asked about comments by German Chancellor Gerhard Schroeder that international law must apply to awarding of contracts, Bush said: "International law? I better call my lawyer."

Bush's decision left many European firms counting the cost and could open new trade disputes. But experts doubted the World Trade Organization would declare the U.S. decision illegal and said it was unlikely to kill a deal to reduce Iraqi debt.

While the door was shut on opponents of the war, more than 60 countries were deemed eligible for contracts, including Japan, Britain, Australia, Poland, Italy, Spain, Turkey, Saudi Arabia, Jordan, Egypt, South Korea, the Philippines and Romania.

 Major European NATO allies of Washington were unimpressed to be told they were being excluded from contracts on U.S. "national security" grounds.

Schroeder said he "made quite clear" to Bush in a telephone conversation that the decision was a "backwards-looking view of the situation" after they had agreed recently to put past differences behind them.

"We had agreed in New York to look to the future," Schroeder told German television. "One should not dramatize the issue. I hope it's not going to stay like this."

United Nations general secretary Kofi Anan (L) and German Chancellor Gerhard Schroeder address the media following their talks in Berlin Dec. 11, 2003. The UN joined European leaders on Thursday in denouncing a U.S. decision to bar key American allies who opposed the Iraq war from sharing in contracts to rebuild the country. [Reuters]

CHINA URGES UNITY

U.N. General Secretary Kofi Annan, speaking in Berlin after meeting Schroeder, also urged Bush to change his stance.

"I think the decision was unfortunate," said Annan.

"Returning to old arguments and divisions doesn't seem particularly constructive," Chris Patten, European Commissioner for External Relations, said in Brussels.

Russian Foreign Minister Igor Ivanov, visiting the German city of Munich, was quoted by Interfax news agency as saying: "We must not allow steps to be taken today that would lead to a split in the international community with regard to Iraq."

China's U.N. Ambassador Wang Guangya, whose country also opposed the war, said: "It is not good to have different standards...It is important we should have a unified position instead of divisive positions for the reconstruction of Iraq."

The Pentagon said it was likely to issue tenders for contracts in the next few days and played down a delay in advertising the lucrative deals.

The contracts were set to be announced last Friday but the Pentagon-run Program Management Office, which handles Iraq contracts, said they had been "temporarily delayed."

Officials said the delay was due to questions raised about the draft proposals by prospective bidders and had nothing to do with the criticism over the bar on war opponents winning prime contracts. Sub-contracting is open to firms from all nations.

A bidding conference set for Thursday to provide details to companies seeking the reconstruction business was delayed until December 19.

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