Washington's Clumsy Antiterrorism Crusade May Cost It Some Friends

In Washington, a bill to put the financial squeeze on Iran and Libya is wending its way quietly through Congress. But in foreign capitals, the reverberations are deafening. Angry reaction from allies and trading partners against the proposal to punish foreign companies that help Iran's and Libya's oil sectors could spur retaliation against the U.S., hurt chances for a global accord to speed investment flows, and even cause the loss of U.S. jobs. Hugo Paemen, the European Commission's Washington envoy, warned lawmakers in a May 20 letter of the danger of triggering "a spiral of conflict."

The uproar is not about the bill's basic aim: to pressure two rogue nations to stop sponsoring terrorism. But foreign governments and companies gripe that Washington, which already embargoes trade by U.S. companies with these countries, is imposing its will far beyond its borders. The bill, slated for an early vote in the House Ways & Means Committee, would penalize foreign companies that sell equipment to or invest more than $40 million a year in Iran's or Libya's oil industry. Among the sanctions: a ban on imports of such companies' products and components into the U.S. and a $10 million limit on loans to them by U.S. lenders. Such rules could shut down U.S. subsidiaries and cost Americans their jobs.

OUTRAGED. U.S. trading partners were already outraged by a law passed in March that punishes foreign companies that trade with Cuba and will even bar executives of some from visiting the U.S. In both cases, other countries argue that the U.S. is imposing a secondary boycott like the Arabs' against Israel, which the U.S. opposed. They want to continue a "critical dialogue," or engagement, with Iran. "Isolationism breeds the worst kinds of extremism," says Christophe de Margerie, president of France's Total Middle East, which plans to invest $600 million or so in Iran's Sirri offshore field.

The bill's supporters believe profits, not principles, are behind the opposition. Oil-rich Iran, which until recently shied away from Western investment, is now desperately seeking it. In Libya's case, existing U.N. sanctions don't affect foreign-owned ventures, but the new proposal would. "That's why the Europeans are bellyaching," says Washington energy expert G. Henry M. Schuler.

Indeed, some international companies may well cancel megabuck deals if the new bill passes. Australia's Broken Hill Proprietary Co. may drop a multibillion-dollar pipeline from Iran to Pakistan. Royal Dutch/Shell may reconsider a proposal to develop Iran's South Pars offshore field. And Italy's state-owned energy company, ENI, fears that the law will block its huge project to pipe Libyan gas to Europe.

Critics argue that the damage the U.S. may do to the world trade order would be far more serious than anything gained by punishing allies to get at Middle East bogeymen. Foreign countries are readying statutes to bar their companies from complying with the U.S. law. American multinationals fear retaliation. And they fret that talks under way on global rules for investment will falter. "Everybody distrusts the Americans for playing fast and loose," says Robert J. Morris, senior vice-president of the U.S. Council for International Business.

The House is likely to pass the bill, possibly with provisions more like a milder version already enacted by the Senate. "You don't want to shoot everybody in the street when you're trying to gun down the terrorist," says Ways & Means member Amo Houghton (R-N.Y.). But in an election year, Washington may do something it will live to regret.

Before it's here, it's on the Bloomberg Terminal.