No Longer Fenced In

By THOMAS SANCTON/PARIS

On March 3, 1991, under a hastily pitched tent at Safwan air base in southern Iraq, General Norman Schwarzkopf gazed across the table at two grim-faced Iraqi generals and calmly dictated cease-fire terms that put an end to the six-week Gulf War. Stunned to learn that the U.S.-led forces had captured more than 60,000 of his soldiers, Iraqi Lieut. General Sultan Hashim Ahmad al- Jabbari acceded to each and every condition. "His face went completely pale," Schwarzkopf later recounted. "He had had no concept of the magnitude of their defeat."

Nor has the regime of Saddam Hussein fully accepted its defeat to this day. Although the West expected his warmaking capacity to be blunted once and for all, Saddam has gone back to business as usual. In defiance of U.N. sanctions that ban nonhumanitarian trade and clamp an embargo on arms sales to Baghdad, he is working to rebuild his military and industrial might. Helping him are middlemen, front companies, compliant neighbors and Western businessmen eager to reforge commercial contacts with a big potential customer and the possessor of the world's second-largest oil reserves.

Saddam doesn't always have to defy the U.N. to achieve his goals. Although Security Council resolutions forbid Iraq to possess or develop weapons of mass destruction, they place no such ban on his conventional-arms industry. Using a clandestine technology-procurement network never fully dismantled, Saddam continues to buy spare parts for T-72 tanks in China and Russia, antitank and air-defense missiles from Bulgaria, and may now be turning to West European firms for critical electronics for his air force. At the same time, he has pressed forward with Iraq's ballistic-missile research at newly built laboratories. With a leaner and meaner fighting machine of about 400,000 troops, Iraq still has the largest army in the region.

Anticipating the end of sanctions, Iraq has negotiated a batch of trade agreements with France, Turkey and Russia, and has even been discussing new contracts with U.S. companies. A loophole in the sanctions allows foreign companies to set up deals with Iraq that will take effect once the U.N. embargo is lifted. The French, Italians, Russians and Turks have interpreted this to mean they can enter contractual relationships; the U.S. has not. "It would be stupid for us to be the last ones in, when everyone else is lining up to sign contracts for Iraq's reconstruction," says General Jeannou Lacaze, retired chief of staff of the French armed forces.

Saddam is already on the verge of winning an important U.N. concession: a partial reopening of Iraq's oil pipeline through Turkey. Periodically Baghdad will be allowed to "flush" the pipeline of old oil -- which the Turks claim is corroding the pipe -- and fill it with fresh oil. Each flush will yield about 12 million bbl. of marketable oil, which would net Iraq some $50 million, and there could be several such operations every year.

Turkish officials, who say they are sacrificing $250 million annually in lost pipeline fees, insist that Iraq will get only humanitarian aid -- not cash -- in exchange for its oil. They promise to refine and use the oil domestically, so it will not upset the world petroleum market. The very idea of limited oil sales for Iraq is anathema to the U.S. But Washington will reluctantly go along with the Security Council plan because the U.S. does not want to offend Turkey, an important friend that allows American jets based on its soil to patrol Iraqi airspace. "Turkey is a good ally," says an American diplomat at the U.N. "We are sympathetic to Turkey's needs."

This week, as he does every 60 days, Iraq's Deputy Prime Minister Tariq Aziz will meet with the U.N. sanctions committee in New York City to argue for an end to the embargo. His previous entreaties were flatly rejected, but this time he will find growing support. Three of the five permanent members -- France, Russia and China -- want the trade bans eased. All three stand to win lucrative contracts to repair Iraq's infrastructure. France and Russia, among Saddam's major prewar trading partners, hope Baghdad could begin paying off its massive debts.

The U.S. and Britain insist that Iraq must first comply with every condition in the U.N. resolutions that ended the Gulf War. Baghdad argues that its recent cooperation with U.N. arms inspections is compliance enough. But U.S. officials doubt Saddam has renounced his dreams of regional dominance. Moreover, he is violating the U.N. resolutions on two key points by refusing to acknowledge Kuwait's independence and by committing human-rights violations against Iraq's Kurds and Shi'ites. Says Secretary of State Warren Christopher: "The stakes are too high to give Iraq the benefit of the doubt or to let our policy be dictated by commercial interests or simple fatigue."

No one doubts that the sanctions are biting. Inflation in Iraq has soared to 250% of prewar levels, while living standards have plunged by half. Both as a money-saving move and a hedge against defections of senior diplomats, Baghdad has recently had to close 15 embassies. The question facing Western policymakers is whether Saddam's intensified lobbying to end the embargo shows last-ditch desperation, which would argue for keeping up the pressure in hopes of toppling the regime, or whether Saddam has successfully ridden out the storm. In any event, his strategy is clever and multipronged:

TACTICAL TWO-STEP. The pipeline deal is the first tangible gain from a tactical about-face by Saddam. After resisting efforts to monitor his capabilities for nuclear, biological and chemical warfare, he suddenly announced last November that his regime would comply fully with U.N. inspectors. Since then, Iraq appears to have done so.

Hans Blix, director general of the International Atomic Energy Agency, reported last October that "in all essential aspects, the nuclear-weapons program is mapped and has been destroyed through the war or neutralized thereafter." Rolf Ekeus, chairman of the U.N. monitoring team, believes Baghdad's chemical programs have been dismantled. Ekeus is also confident that his men have accounted for all 890 Scud-B missiles Iraq bought from the Soviet Union during the 1970s and '80s. But he still has doubts that Iraq has destroyed its biological-weapons program.

Saddam's aim is plainly to fulfill the letter of U.N. law by coming clean about Iraq's unconventional-weapons programs in order to get the sanctions lifted. But monitors like Ekeus suspect he has no intention of obeying the spirit of the ban. Iraq may already be secretly reviving its long-range missile program. Scientists continue to pursue ballistic-missile research, not only at sites destroyed during the war and rebuilt, such as the Saad 16 research and development center near Mosul, but in new facilities such as Ibn al-Haytham lab, constructed near Baghdad. While U.N. resolutions allow Iraq to build short-range rockets with a range under 93 miles, a U.N. expert notes "the same technology used to make a missile that flies 93 miles can be used on one that flies 400 or 1,200 miles."

U.N. inspectors insist on long-term monitoring to make sure Iraq does not resume development of mass-destruction weapons once sanctions are eased. "The Security Council does not trust Iraq's intentions," says Ekeus, "and for as long as that suspicion continues, we will continue our monitoring efforts."

SHOPPING NETWORK. There are clear indications that Saddam has reopened his high-tech procurement network. In June 1993 the Egyptian navy intercepted a freighter carrying hydrochloric acid from India outside the Gulf of Aqaba. Experts said Iraq could use the chemical for uranium enrichment.

Six months later, German and Saudi officials detained a German-registered ship, the Asian Senator, as it steamed past a Saudi port en route to Beirut. On board, they seized two containers of Chinese-produced ammonium perchlorate, an essential ingredient for solid-fuel rockets and ballistic missiles. Though the ostensible destination was Lebanon, U.N. monitors and U.S. officials confirmed that the real end user was Iraq's long-range missile program.

U.S. customs officials are investigating half a dozen cases in which Iraq allegedly broke sanctions. However, "for every case we see," says one of the agents, "there's probably a hundred potential violators out there." According to congressional investigators, many front companies established in the late 1980s to purchase parts and technology for Saddam's weapons programs continue to operate in France, Switzerland, Germany, Britain and the U.S. Last month American customs agents arrested a pair of Jordanian nationals, Al. M. Harb and his wife Rula Saba Harb, on charges of using a home-based front company in Midlothian, Virginia, to circumvent the Iraqi embargo. Court documents show that the couple made more than 100 shipments to Iraq over the past three years, including equipment that could be used for ballistic missiles and nuclear weapons. "These aren't the Rosenbergs," says a customs agent. "But we have established that they shipped equipment and spare parts of potential use to a revived Iraqi bomb program." The couple have been indicted for violating the Iraq embargo and will go on trial in mid-June.

To finance its arms programs, Baghdad is constantly trying to persuade the U.N. to release its billions of dollars of frozen assets on the pretext of buying "humanitarian" supplies. So far, with the agreement of the sanctions committee, the Iraqis have managed to get back more than $250 million for humanitarian purchases, most of it from British and Swiss banks.

OLD FRIENDS. France, which enjoyed cozy commercial ties with Iraq before the war, is particularly eager to loosen trade strictures. So far, the war and the ! embargo have cost taxpayers an estimated $8.7 billion in unpaid government- guaranteed loans, and Paris wants to get the money back.

At the same time, French companies that did big business with Baghdad want to resume a lucrative connection. State-owned oil giants Elf Aquitaine and Total were the first Western firms to make contact with Baghdad after the war. Iraqi authorities proposed to give the two French companies a rich production monopoly developing the Majnoun Islands and Nahr Umar oilfields, which could produce 1 million bbl. a day. In exchange, the Iraqis wanted the French to lobby for lifting U.N. sanctions. Since then, according to the weekly Canard Enchaine, representatives of the two companies have made more than 40 trips to Baghdad and preliminary contracts have been drawn up. The French government has frozen the deal until sanctions are lifted, though a Foreign Ministry spokesman insists that "we have nothing against such contacts."

Baghdad is trying to attract Russia by offering major contracts for oil exploration and rebuilding refineries. In February the Italian gas company Italgaz sent a high-level delegation to Iraq, followed last month by representatives of 30 leading Italian companies, including Fiat autos and International Scientifica, a medical-equipment maker. British, German and Japanese firms have also been poking around the bazaar.

Nor have Americans been wholly absent. According to Western diplomats and business travelers, agents of Occidental Petroleum, Chevron, Boeing, General Motors and others have been spotted in the first-class hotels of Baghdad and Amman, Jordan, where many of the meetings with Iraqi trade officials take place. State Department officials say they have investigated these claims and found no sign of wrongdoing by U.S. companies, who are "officially discouraged" from making such contacts. Says a State Department official: "The Iraqis are engaged in a constant effort to get companies to deal with them quickly. They want them to believe the train is leaving the station and that they will be left behind if they don't jump on board."

Considering the potentially dire consequences -- economic, military and diplomatic -- of a hasty return to doing business with Iraq, the U.S. wants to err on the side of caution. That is also the position of the U.N. inspectors, who bear primary responsibility for making sure that Saddam's infernal death machine does not spring back to life. If the sanctions are lifted and the Iraqis renege on their promises, putting the restrictions back again may prove to be too little, too late.

With reporting by Bruce Crumley/Paris and Kenneth R. Timmerman/Washington