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Inc's Cosy Deals with Iraq at Risk as War Looms

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By Benoit Faucon and David Gauthier-Villars

Dow Jones Newswires
January 21, 2003

For 30 years, French business has enjoyed a close relationship with Iraq. Baghdad has a French phone system, French cars are on the streets, and France's oil giant TotalFinaElf SA (TOT) has been working hard to get access to Iraq's massive oil reserves. But with a U.S.-led coalition threatening to march into Baghdad to topple President Saddam Hussein, France Inc. is worried that the relationship may be shattered - and that the big contracts to rebuild Iraq may instead go to U.S. rivals.


"Postwar Kuwait, where U.S. companies got most contracts, doesn't bode well for the presence of French companies in Iraq," said Pierre Girard-Hautbout, an adviser at OFDIC, a French business go-between active in Iraq. His comments referred to the aftermath of the Gulf War.

At least one major Iraqi opposition group in exile has given a clear warning that France's inside track may be coming to an end. "(New authorities) will review all contracts signed with Saddam Hussein according to the Iraqi people's interests and will reject them if they are illegal," said Hamid Al-Bayati, the U.K. representative of Shiite Supreme Council for the Islamic Revolution in Iraq. "We want a balanced relationship with the whole world and not just one country."

The list of French companies that trade with Iraq reads like a Who's Who of French industry, with TotalFinaElf joined by telecommunications equipment maker Alcatel SA (ALA), car makers Peugeot SA (F.PEU) and Renault SA (F.RNA), and electrical equipment maker Schneider Electric SA (F.SCN). Building on decades of close relationships between Paris and Baghdad, French companies have established themselves as the largest suppliers of goods to Iraq since the U.N. trade embargo was partially lifted in 1996. In 2001, France exported EUR660 million, or 14%, of the oil-for-food program's value. Australia and Italy came in second and third position, respectively.

Under the oil-for-food program, Iraq may sell oil with the proceeds deposited in a bank account in New York. The money can only be used to buy nonmilitary goods under contracts cleared with the U.N.

To be sure, the shape of any regime that may replace that of Saddam Hussein isn't yet clear. Neither is it clear whether Saddam Hussein's removal would be enough, or whether decision-makers in the Iraqi civil service would also go.

But France takes seriously the threat that the special relationship may end. In the past few weeks, French diplomats paid a visit to a key member of one of the main exiled Iraqi opposition groups asking for the country's business interests to be respected in case of regime change, a member of the Iraqi opposition told Dow Jones Newswires. "They were worried. They inquired about what position they would have in terms of business and trade, including but not only, for oil," the opposition source said.

French Foreign Office spokesman Francois Rivasseau said diplomats had routine meetings with Shiite and Kurdish opposition groups, but he added he wasn't aware of any business issues being discussed.

Franco-Iraqi special ties date back to the early 1970s, when France's pan-Arabic policy helped it replace the U.K. as Iraq's main partner. Several French state-owned companies went to Iraq, providing a channel of commercial diplomacy in tandem with traditional French diplomacy. The ties endured thanks to a network of French and Iraqi government agencies as well as a web of Franco-Iraqi trade associations. France has also been publicly less vocal than other Western countries in criticizing the current Iraqi government.

"All deals with Iraq always have a political dimension. They only sign contract with countries who support them," said a person close to the Middle East business community in Paris. But French companies maintain that the commercial benefits come with disadvantages, especially now. To avoid being associated too closely with the Iraqi regime, French business delegations are cautious not to meet with Saddam Hussein, according to a person who has helped organize business trips to Iraq.

"We have the feeling Iraqi authorities sometimes put our company names to the fore as a sign that relations with France are warming," said an official with a large French company who declined to be named. "We're the chips in a poker game."

Trade With Iraq Is No Easy Ride

Selling goods to Iraq is an uphill battle. Except for the oil-for-food program, international trade with the country is banned. Even the oil-for-food program runs slowly, with cumbersome paperwork, according to companies in France and beyond. Since 2001, Iraq has increasingly turned to Arab countries, China and Russia as its preferred business partners on the grounds that those countries are more friendly than France.

Despite the problems, French companies have navigated the oil-for-food system better than most. Alcatel, for example, has landed contracts worth nearly $75 million. Its main task was to repair Iraq's telephone network that the French company had built in the 1980s and which was bombed during the Gulf War. Peugeot said it shipped around 5,000 cars to Iraq between 1998 and 2002, while Renault sold farming equipment worth $75 million. French companies also hoped the deals would lay the groundwork for much more in the event that trade sanctions were loosened. In telecommunications alone, for instance, a U.N. study in 1998 estimated that Iraq would require $1 billion of investment. France Inc. had high hopes it could secure those deals if sanctions had been lifted.

The biggest loser could be TotalFinaElf. Iraq's oil potential suggests its exports could climb rapidly if sanctions were lifted to an estimated EUR25 billion per year from EUR3.2 billion in 2001. The French oil firm spent six years in the 1990s doing preparatory work on the giant Majnoon and Bin Umar oilfields, but it has no guarantee it will be named operator of the fields by Iraqi authorities on the day economic sanctions are removed.

Yet some French businessmen believe their deep-rooted presence in Iraq and friendly ties with business and technical - rather than political -decision-makers should enable them to expand in the Iraqi market even if Iraq's government becomes heavily influenced by the U.S.

"I'm not selling water pumps to Saddam Hussein," said Ahmed Atlaoui, export director at French water equipment maker Hydrokit and head of Franco-Iraqi trade association Afice. "I'm selling to Iraqi companies."


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.