The White House staunchly defended Wednesday the Pentagon's decision to bar companies from countries opposed to the Iraq war from bidding on $18.6 billion worth of major reconstruction contracts in that country.
But nevertheless, the European Union said Wednesday it would examine whether the United States violates world trade rules with its decision.
The administration said countries can boost their chances of winning contracts by donating more military resources.
"I think it is appropriate and reasonable to expect that prime contracts for reconstruction funded by U.S. taxpayer dollars go to the Iraqi people and those helping with the United States on the difficult task of helping to build a free, democratic and prosperous Iraq," White House spokesman Scott McClellan told reporters on Wednesday.
"This decision was previously announced and it's one we fully support … other countries can fully participate through the subcontracting process."
McClellan said other nations that want to be eligible for a slice of the $18.6 billion -- the amount of money Congress approved for Iraq reconstruction following a special budget request by President Bush -- can do so by participating militarily.
They can also vie for contracts being financed by a separate international fund that the White House estimates will be worth $13 billion, he said.
A directive from Deputy Defense Secretary Paul Wolfowitz (search) limits bidders on those 26 contracts to firms from the United States, Iraq, their coalition partners and other countries that have sent troops to Iraq.
The ruling bars companies from U.S. allies such as France, Germany, Russia and Canada from bidding on prime contracts because their governments opposed the American-led war that ousted Saddam Hussein's regime. Countries that contributed troops and supported the effort -- such as Italy, Africa, Micronesia, Spain, Japan, Rwanda and Afghanistan -- will be able to bid on prime contracts.
Wolfowitz wrote that the restrictions would encourage other countries to join the coalition in Iraq. A Pentagon spokesman, Maj. Joe Yoswa, said the order does not prohibit companies from the excluded countries from getting subcontracts in Iraq.
"If these comments are accurate ... it would be difficult for us to give further money for the reconstruction of Iraq," said Canada's deputy prime minister John Manley. "To exclude Canadians just because they are Canadians would be unacceptable if they accept funds from Canadian taxpayers for the reconstruction of Iraq."
Steven Hogue, a spokesman for Prime Minister Jean Chretien (search), said Canada has contributed more than $190 million to the rebuilding effort.
Germany called the decision "unacceptable" and Foreign Minister Joschka Fischer said, "We will be speaking about it with the American side."
In Paris, Foreign Ministry spokesman Herve Ladsous said that France had "taken note" of the Pentagon's decision and was studying whether it follows international law.
The Wolfowitz memo (pdf), dated Friday and posted on a Pentagon Web site Tuesday, says restricting contract bids "is necessary for the protection of the essential security interests of the United States."
The EU executive body, the European Commission, said it would study whether the order violates World Trade Organization rules.
"We are asking the U.S. to provide us with information so we can see whether or not their commitments with regard to the WTO have been respected," said Arancha Gonzalez, trade spokeswoman at the European Commission.
She said the 26 contracts listed on the Pentagon Web site would be examined to see what they cover and whether national security exemptions would apply.
McClellan said the issue was discussed at two trade fairs recently, including one in November in Virginia and another in London, where the process was spelled out.
Iraqis are included in the rebuilding process, the spokesman said, and "if countries want to join in coalition efforts in Iraq, they would become eligible for prime contracts" unless those countries are aiding terrorists.
Bush administration officials have suggested publicly and privately since before the war started that countries that opposed the United States on Iraq would be cut out of at least some of the lucrative rebuilding contracts administered by Washington.
The order from Wolfowitz covers contracts to manage the entire rebuilding effort, train and equip the Iraqi National Army and rebuild infrastructure including roads, sewers, power plants and oil fields.
A senior State Department official told Fox News that State officials worked with Defense officials on the issue.
"It is an interagency decision," the official said.
Some U.S. lawmakers lambasted the decision.
"This totally gratuitous slap does nothing to protect our security interests and everything to alienate countries we need with us in Iraq," Delaware Sen. Joe Biden, the ranking Democrat on the Senate Foreign Relations Committee, said in a statement.
"At the very time the secretary of state and secretary of defense were at NATO requesting greater allied participation in Iraq and Afghanistan, we stick a finger in the eye of those whose help we are seeking … It's long past time we stop treating Iraq like a prize and start acting in the interests of the United States," Biden said.
Troops Coming Home
Meanwhile, the Pentagon's top general said Tuesday the U.S. military will not be vulnerable when four of the Army's 10 divisions come home from Iraq to rest and retrain early next year.
Joint Chiefs of Staff Chairman Richard Myers (search) also asserted the U.S. is "clearly" winning in Iraq.
Myers and Defense Secretary Donald H. Rumsfeld cautioned, however, that a recent decline in anti-coalition attacks in Iraq may be temporary.
"It's a bit early to call it a trend," Rumsfeld said, adding that he believes more attacks on American troops in Iraq are inevitable.
They spoke on a day when suicide bombers set off explosions at the gates of two U.S. military bases, injuring scores of American troops, most of them slightly. The coalition is increasingly able to thwart such attacks before they happen, Myers said.
"Our ability to gather intelligence and target specifically folks that are in the bomb-making business has gone up dramatically," Myers said. "We have had a real spike up in Iraqis coming forward to provide intelligence."
"This international coalition is not going to let ... the former regime elements that are fighting us win," Myers said. "We're going to win. That's it."
That troop rotation will involve most of the Army: Four of the Army's 10 divisions will be going home from Iraq, replaced by three divisions. Another Army division will rotate into Afghanistan.
"In the next four months, we're going to pull off a logistics feat that will rival any in history," Myers said.
The Pentagon will carefully manage the rotations to minimize the damage from replacing experienced troops, Rumsfeld said.
"The people going over are ready, but the people there are experienced and really know their stuff," Rumsfeld said. "There's going to have to be overlap. We're going to have to be sensitive to the fact that the knowledge that's built up there and the relationships have to be transferred."
Rumsfeld denied reports that Israeli experts were training American or Iraqi units to battle enemy fighters in Iraq. Myers said an American unit was working to capture Saddam and others of the 55 most-wanted Iraqis.
Myers also defended the arrest of the wife and daughter of Izzat Ibrahim al-Douri, a former aide to Saddam whom U.S. officials accuse of organizing anti-American attacks. Amnesty International has said the arrests would violate international law if they were meant to pressure al-Douri into surrendering.
"I'm sure we wouldn't do anything illegal," Myers said.
Later, a senior defense official said the women were detained for questioning because they might have information about al-Douri's whereabouts, and the arrests therefore were legal.
Fox News' Teri Schultz and The Associated Press contributed to this report.