Europe and the US faced the prospects of a new trade war last night after Washington excluded companies from most EU countries, including Ireland, from bidding for contracts to rebuild Iraq because they had not supported the war against Saddam Hussein. From Denis Staunton, in Brussels and Conor O'Clery, in New Hampshire
The European Commission said it was examining the contracts to determine if the US move is in breach of World Trade Organisation rules on public procurement.
"As a first measure the European Commission will be requesting all necessary information from the US authorities concerned on the grounds for these limitations," the Commission said in a statement.
Citing "the essential security interests of the United States", the US Deputy Defence Secretary, Mr Paul Wolfowitz, announced in a directive that just 63 countries, including the US and Iraq, would be allowed to bid for the 26 contracts worth €15.2 billion.
Contractors from six EU member-states - Denmark, Italy, the Netherlands, Portugal, Spain and Britain - will be allowed to bid for contracts covering the rebuilding of electricity, communications and water systems, public buildings, roads and rail links, airports, other public works and security and justice.
Seven of the 10 new member-states that will join the EU next year are on the list, along with the three candidate countries of Bulgaria, Romania and Turkey.
Other countries eligible to bid for the contracts include Jordan, Egypt, South Korea, the Philippines, Saudi Arabia, Tonga and the Marshall Islands.
The White House spokesman, Mr Scott McClellan, said the policy had been personally approved by President Bush, and was appropriate and reasonable.
"Prime contracts for reconstruction funded by US taxpayer dollars should go to the Iraqi people and those countries who are working with the United States on the difficult task of helping to build a free, democratic and prosperous Iraq," said Mr McClellan. He said the US could be willing to open the contracts to countries that did not join the war if they assisted "coalition efforts" in other ways.
Germany and France reacted angrily to the move, which France suggested was illegal and Germany described as unacceptable.
"We noted with astonishment today the reports, and we will be speaking about it with the American side," the German Foreign Minister, Mr Joschka Fischer, said after talks with his Russian counterpart, Mr Igor Ivanov.
The decision also drew criticism from Canada, which is not on the list of eligible bidders, and from Mr Bush's Democratic opponents in the US.
"I can't think of anything more dumber, more insulting and more inciting," said Democratic senator Mr John Kerry when asked about the decision during a Democratic candidates' debate in New Hampshire.