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updated 7/21/2004 3:12:18 PM ET 2004-07-21T19:12:18

The U.S. government is considering opening up billions of dollars of Iraqi reconstruction contracts to all countries, reversing a policy that restricted them to countries that supported the U.S. war in Iraq.

Under the new policy, any country — except nations such as Iran that the U.S. has designated sponsors of terrorism — could bid for prime contracts to rebuild Iraq. Details are being finalized with the United States Trade Representative.

In December, Paul Wolfowitz, deputy defense secretary, said the U.S. would prohibit non-coalition countries from bidding for work awarded out of the $18.4 billion that Congress set aside for Iraqi reconstruction. In a memo, Mr. Wolfowitz said the move was necessary to protect U.S. "security interests."

At the time, he argued that the decision to exclude countries such as France and Germany would encourage countries to offer support to the U.S.-led coalition. But critics argued that it would hamper the Bush administration's efforts to rebuild international support after a series of bitter disputes with France and Germany before the Iraq war. The European Commission at the time criticized the policy, saying it was "no time to reopen old wounds".

Condoleezza Rice, the president's national security adviser, in January said the administration might review the policy for certain countries. Later that month the U.S. relaxed the policy to allow Canadian companies to bid for contracts, following heavy lobbying from the Canadian government.

The removal of restrictions on foreign companies bidding comes as the administration attempts to speed up reconstruction following the handover of sovereignty to Iraqis last month. While Congress earmarked $18.4 billio for reconstruction, much of the money has not been spent.

Less than $5 billion has been assigned to specific contracts. The rebuilding process has suffered from a combination of the difficult security environment in Iraq and bureaucratic logjams.

In an attempt to speed up reconstruction ahead of the handover of sovereignty, Paul Bremer, the administrator of the now-defunct Coalition Provisional Authority, in April asked the White House for flexibility in applying U.S. procurement laws.

Copyright The Financial Times Ltd. All rights reserved.

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