Laissez-faire not an option

French companies are determined to defend their interests in Iraq.

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By  John Irish Published  May 14, 2003

|~||~||~|“We have no eternal allies and we have no perpetual enemies. Our interests are eternal and perpetual and those interests it is our duty to follow,” said Viscount Palmerston regarding Britain’s foreign policy almost two centuries ago. With the war in Iraq abating, the main protagonists for war and peace are now drawing up post-war plans, shuttling backwards and forwards to establish the upper hand. What remains to be seen is whether the United States’ implacable stance, which brought about the fall of Saddam Hussein, or France’s charm offensive will serve their own country’s interests better.

While words such as arrogance, punishment and isolation echo around the White House, whenever a committee member sips a glass of Muscadet, the French have quickly realised that their siding with Saddam Hussein’s dictatorship may ultimately come back to haunt them. Most Anglo-Saxon newspapers have attacked the anti-war rhetoric that appeared so genuine prior to the war as just a Gallic attempt to preserve France’s commercial interests. Meanwhile, in France, President Chirac, often praised for his defiance of the US in this conflict, is discreetly incurring the wrath of a few corporate giants.

For many years, French companies have played a game of double jeopardy. On the one hand, Uncle Sam serves as France’s largest commercial partner outside of Europe, importing almost US $26 billion worth of French products in 2002. On the flip side of the coin, Franco-Iraqi trade relations have been ongoing for almost thirty years. A report published last September for the French Parliament estimated the value of French exports to Iraq since the oil embargo was partially lifted in 1996 at $3.5 billion. Ever since the end of the 1970s, Baghdad has chosen France as its preferred weapons provider and modernising guru. Airports, water reserves, the motorway in the south, Mirage F1 jets and even the odd nuclear reactor, here and there, are all just part of what Paris has provided Iraq, but may stand to lose in the future.

With the launch of the UN oil for food programme in 1996, France’s market share of imports to Iraq more than quadrupled. “Before the Gulf War, the French part of the market was only about 5%. We positioned ourselves, because we wanted to be there the day the embargo was lifted,” explains Jack Sarnelli, economic consultant on Iraq for France between 1996-2001. Even in 2001, when French imports to Iraq fell due to a thaw in relations between the two countries, French companies accounted for 14% of Iraq’s imports, totalling some $660 million. That figure is twice as large as 1997’s $216 million and despite a drop of 29% in 2002, France managed to double China, Germany, Australia, Italy and Vietnam put together.

By 2001, France was, unsurprisingly the largest western country represented at Baghdad’s International Trade Fair with 81 stands.
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Bring on the United Nations

Is it any surprise then, that as soon as the war broke out, French companies began to get a sinking feeling? As the crisis abated, both President Chirac and Foreign Minister de Villepin urged the future of Iraq to be settled within the framework of a new UN resolution.

Without even considering the long term prospects for French companies in Iraq, many who were involved prior to the war are already feeling the short term impact of the conflict. The Medef (Association of French Companies) met on April 03 to investigate what was happening to goods already in production or waiting to be delivered on Iraq’s borders, that could potentially all be lost. “French companies are no different to any other companies of any other origin. Either they already have contracts signed and they have the burden of what has been produced, but not delivered, or even worse, what is being delivered by sea, but has not reached Baghdad or Iraq,” says Jihad Feghali, CEO of Nutris Company, which represents more than 140 companies in Iraq.

He goes on to stress that for these goods, shelters and salvage ports will need to be found, be it in Syria, Jordan, the UAE or Lebanon, but that this will inevitably cost the companies dear. Feghali argues this very point is a cause for bringing the UN into the reconstruction fold. According to officials at the Medef, company executives are already feeling the pinch, losing up to 50% of their turnover during this period. The panic buttons are gradually being pushed.

But what about American assertions that the French did not fight the war, so they cannot take part in the peace? That statement is one reason why the French felt that their stance had to be maintained. Looking at previous examples, both the Americans and their British counterparts set precedents that made the French naturally wary of any possible future outcome, irrespective of whether France went to war or not.

“If the United States sets up an administration that plays to its tune, we shall only be left with the crumbs, just like Bosnia, Afghanistan, Kuwait and Kosovo.” explains Christain Valery, secretary general of the Association of Franco-Iraqi Economic Co-operation. Considering the French have not taken part in this war, the chances are that unless a UN resolution is passed, like it eventually was in Kuwait, the British and Americans will get the lion’s share, argues Valery.

Joseph Braude, a senior analyst at Pyramid Research, takes this one step further, highlighting that there are traditional natural geo-political considerations in contracting throughout the Middle East. “We see that in North Africa where France is omnipresent; we see it in Saudi Arabia where the United States has historically been omnipresent,” he says. One of the most significant recent French contracts signed in Iraq was Alcatel’s in 2001. The telecommunications firm signed a $76 million deal that included restoring the international telephone exchange and existing telephone links in Baghdad. Whether Alcatel is able to hold onto that, Braude argues, will depend on whether there’s a pro-American government in Iraq. “If so, then Motorola and Lucent will be in a position to compete with the traditional stalwarts of Iraqi telecomms, which includes Alcatel.”
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A double hypocrisy?
The likes of Peugeot and Totalfinaelf have increasingly become frustrated as the campaign in Iraq has developed. The meeting held by the Medef, although remaining unofficial, focused on the spate of announcements made by the US authorities to award contracts to American companies, such as Halliburton and Bechtel for post-war reconstruction.

The conflicting messages out of Washington did not help the situation. Andrew Natsios, a director of USAID, stressed that 50% of the association’s budget for the first part of reconstruction would go to non-American companies. However, hawks such as Richard Perle, dismissed French proposals that the UN should orchestrate the Iraq reconstruction programme as “unsurprising arrogance on the part of French diplomacy.”

Nevertheless, among French circles such arrogance and hypocrisy works both ways. While, on the street, Americans are led to believe that their administration is whiter than white, US companies have taken a piece of the Iraqi pie even prior to the war. Millions of dollars of US oil business with Iraq was channelled discreetly through European and particularly French companies, as they were Iraq’s dominant western trading partner.
Leading US oil service companies such as Halliburton, Baker Hughes, Schlumberger, Fisher-Rosemount and others have used subsidiaries and joint venture companies for this lucrative business, so as to avoid straining relations with Washington and jeopardising their ties with President Saddam Hussein’s government in Baghdad. By submitting their contracts to the UN via mainly French subsidiaries, many of which do little more than lend their name to the transaction, the companies were treated as European.

The anti-French lobby within the Pentagon must not forget that while the oil for food programme meant that Iraq could choose who its suppliers were, more than $335 million of contracts were passed to American companies by their French subsidiaries, reported the daily Le Monde newspaper. Halliburton, which stands to gain a great deal from post-war Iraq, won $97.3 million of contracts. Secondly, French agents selling American products signed 308 contracts for a total of $160.7 million.

But the Gallic state’s interest does not just lie in winning contracts.There’s also the small matter of Saddam’s debt. According to the Economist Intelligence Unit (EIU), France claims it is owed in the region of $8 billion. If the UN were involved, the French would be able to serve their interests, particularly as it holds a permanent veto on the Security Council. However, the American administration says that it wants to spend money on redevelopment rather than crippling Iraq’s recovery by incurring Saddam’s bills. Whether France is ready to write off those debts may depend on how much of the pie it receives in post-war reconstruction.

The role of the UN in any humanitarian effort is likely to be bypassed as larger companies begin to set out their stalls in Iraq. In the early stages, the UN will play a role, but in the long term, to get the humanitarian aid into Iraq, NGOs will need to work with the large companies to function. Whether electricity, roads or water, big corporations will be needed to set up these infrastructures.
Once those companies are on the terrain, they will establish Iraq’s future business practices. The fear in Paris is that once business habits are defined by Anglo-Saxon ways, the French will always lose out. By increasing the role of the UN, the French are hoping that a wider range of companies will enter Iraq, with contracts awarded to some that already know the situation on the ground.

“The United Nations must be at the heart of the reconstruction and the administration of Iraq, Dominique de Villepin told the world’s media last month, “because no country alone can restore a state with such a mix of ethnicities, cultures and religions.”
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Arab leaders and UN, Secretary General Kofi Annan echoed the Foreign Minister’s thoughts. But how realistic are the French calls for a United Nations resolution that would open up the reconstruction of Iraq to more than America and her friends?

After 12 years, during which the UN has failed to disarm Iraq, it’s unlikely that George Bush will ask the UN to politely take over the responsibility for reconstruction. Secondly, the UN’s track record in war torn countries arguably isn’t all that great. On the one hand, it finds itself dealing with humanitarian crises, while on the other hand, the UN charter forbids its soldiers from firing back when attacked, as was the case in Bosnia. Add that to the prevailing feeling of betrayal surrounding the Pentagon and the Americans see no reason for accommodating the UN, other than in a humanitarian role.

Perhaps, on that front, the Americans will not budge. But where France is hoping it will see some salvation is in how the US is perceived in the Arab world. According to Nutris Company’s Feghali, American hegemony in Iraq and the region as a whole is a false dream. United States calls for democracy in Iraq, he argues, would be dismissed by the Iraqi people if bids and tenders were restricted to American companies.

“Where is the democracy in this? They can rule it militarily, but not economically, it’s not Afghanistan or a desert in Arizona, it’s a country with hundreds of years of culture and the population has connections, relations in all the surrounding Arab countries and the rest of the world,” says Feghali. “This would be a drama for the American people and for the Iraqi citizen. The only way to bring confidence to the civilians and the population, and to the neighbouring countries is by bringing the whole issue to the UN, so that there’s a feeling of justice and not hegemony or occupation,” Feghali continues.

What is certain is that memories are very short in the political and business world. While French bashing may currently be popular in the US, the Americans’ desire to do business in Iraq may, in the long run, make it impossible for them to ignore France’s 30 years of experience in the country.
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