Friday, May 16, 2008

 
   (From THE WALL STREET JOURNAL)  
   By Jay Solomon 

TRIPOLI, Libya -- Recently, Libyan strongman Col. Moammar Gadhafi wrote a letter to President Bush, asking: Where are we going with our relationship?

Five years ago, the Bush administration helped persuade Libya -- for decades one of the world's leading sponsors of terrorism -- to scrap its nuclear ambitions and dismantle its terror infrastructure. It ranks as one of the president's signature foreign-policy successes and was supposed to blaze a path for other rogue states, principally North Korea and Iran.

Now, these ties are fraying.

According to Libyan diplomats who have seen the letter, sent in early March, Col. Gadhafi is threatening to freeze Libya's rapprochement with the U.S. amid feelings that Washington didn't follow through with the economic and political incentives that were promised. Particularly galling to Tripoli: A new law, passed by Congress in January, that lets American victims of state-sponsored terrorism seize Libyan assets in the U.S., as well as the assets of companies doing business with Tripoli. That law is seen as a new form of economic sanctions.

Indeed, in recent weeks, lawyers representing victims of Libyan-linked attacks -- particularly the 1986 bombing of the La Belle disco in Berlin -- have started placing liens on the assets of companies and individuals doing business with Libya. Among the firms targeted are ExxonMobil CorpExxonMobil Corp., Chevron CorpChevron Corp. and Occidental Petroleum CorpOccidental Petroleum Corp., attorneys say.

"We were supposed to be the model, but what did we actually gain?" asks Abdulati al-Obidi, a former Libyan prime minister who led much of the negotiations with the U.S.

Senior Bush administration officials point out that the U.S.-Libya relationship has progressed dramatically. "Today, Libya is out of terrorism," says David Welch, an assistant secretary of state and the administration's point man on Libya. "It's a success story in the process of graduating a rogue state." Tripoli has been particularly helpful, they say, in combating al Qaeda and promoting peace efforts in African countries such as Sudan.

The White House has responded to Col. Gadhafi's concerns by requesting a congressional waiver for Libya from the new terrorism legislation. It has also instructed Mr. Welch to broker a comprehensive payout for the U.S. victims of Libyan attacks.

The Libya tensions undermine the U.S.'s nuclear-nonproliferation strategy, which promises diplomatic and economic rewards for nations willing to quit their bomb programs. Washington is currently trying to use economic incentives to rein in North Korea and Iran, which have been expanding their nuclear capabilities in recent years.

The Libya issue "gives us a bad reputation for not following through on things," says Carolyn Leddy, who directed counterproliferation strategy at the White House in 2006-07.

Col. Gadhafi now openly questions the wisdom of engaging the U.S., which teamed with the British to bring Libya in from the cold. In late March, he told Arab leaders in Damascus, Syria, they need to unify politically, since "America might agree to hang us one day" -- a reference to Saddam Hussein's fate in Iraq.

In recent months, Libyan officials say they have restricted U.S.-dollar transactions, forcing overseas business to be conducted in euros or yen. Libya's immense government investment fund, with some $50 billion to spend, has halted U.S. investments. In March, a deal by U.S. private equity-firm Colony Capital LLC to take a $3.5 billion stake in a Tripoli-owned refinery fell apart, stoking concerns in Washington about political retaliation.

Colony declined to comment. Libya says the deal collapsed due to "technical reasons."

Libya has also reactivated a long-dormant demand: It wants the U.S. to pay compensation for the 40 Libyans killed in 1986 when U.S. fighter planes bombed government targets in Tripoli and Benghazi. Col. Gadhafi's adopted daughter was killed in the raid.

"The U.S. clearly doesn't know how to deal with Libya," says Abuzed Dorda, a former prime minister who now heads Libya's powerful Housing and Infrastructure Board. He controls a budget of some $50 billion to build roads, bridges and apartment buildings and says he would like to hire U.S. firms, but the recent legislation makes it risky. Instead, most of the money is flowing to Chinese, Russian and European firms.

Just last month, Russia's then-president, Vladimir Putin, met Col. Gadhafi in Tripoli and inked billions of dollars in new contracts and an oil-and-gas pact between Gazprom and Libya's National Oil CoNational Oil Co. Meantime, on a recent afternoon in Tripoli's Foreign Ministry building, a group of Chinese diplomats were actively engaging their Libyan counterparts in Arabic. By contrast, the U.S. ambassador-designate to Libya, Gene Cretz, remains in Washington, D.C., where he is studying Arabic, due to a congressional block on his confirmation.

"No one is even thinking of investing in the U.S." right now, says Mr. Dorda, a slender, sharp-dressing bureaucrat whose face carries wounds from the U.S. bombing of Tripoli back in 1986, during the Reagan administration. The attack left Mr. Dorda with a slight scar on his lip; "I see Ronald Reagan every morning" when I shave, he quips.

One of Mr. Dorda's last deals with a U.S. company was in December, when he signed a contract potentially worth $574 million with Los Angeles-based Aecom Technology Corp. to help oversee infrastructure projects. Recently, he sent three Libyan academics to Aecom's Houston offices for training. "Transform them from professors to executives," Mr. Dorda barked playfully over the phone to Aecom executive Jim Thompson one afternoon recently. "I will only be happy when they're exhausted."

The limited U.S. presence in Libya comes as the nation is experiencing one of the greatest economic booms in its history, driven by the high price of oil. The International Monetary Fund predicts Libya's economy will grow by nearly 9% this year.

Asian and European firms are building waterfront hotels. Western retailers, including a Marks & Spencer, are sprouting up in Tripoli's shopping district.

At the recent Tripoli International Trade Fair, however -- a bustling event replete with rock bands and singing clowns -- American firms were notably absent. Companies from around the world, including Syria, Iran, India, Thailand and South Korea, touted their wares.

Events like these are part of Col. Gadhafi's push to reshape the Libyan state and promote private enterprise. "All this octopus that eats money will come to an end," he told Libya's General People's Committee in March, referring to Libya's state-controlled economy. "The traditional state is over."

The gains were evident one recent afternoon at the Cafe Soraya, a few yards from Tripoli's central Green Square. Owner Zak Khalifa sat with a mix of German and Arab businessmen talking about the exploding opportunities. Mr. Khalifa moved back to Tripoli after U.S. sanctions were lifted in 2004, after living in Canada, Minnesota and Beirut.

"The system is more open. The country is more open," Mr. Khalifa says from the Soraya's rear courtyard, where dozens of men smoke water pipes and drink nonalcoholic beer.

Young Libyans display an enthusiasm for all things American. Brothers Mohammed and Nizar Arbi walked out of a central Tripoli Internet cafe recently, describing their hopes to travel to Los Angeles to make their names in hip-hop music. Both speak more-than-passable English, a product, they say, of watching "Oprah" and MTV Europe on Saudi cable television.

"We want to start a record career," 21-year-old Nizar Arbi says.

This represents a sharp change from Libya's cloistered past. Col. Gadhafi seized power in a 1969 coup, and reversed Libya's historic friendship with the U.S. Instead, he provided money and weapons to groups ranging from the Palestinian Liberation Organization to the Irish Republican Army.

For years, Libya held the role of global bad guy now filled by al Qaeda. In the late 1980s, Tripoli was linked to the bombing of Pan Am Flight 103 over Lockerbie, Scotland, as well as assassination attempts on U.S. diplomats.

The Sept. 11, 2001, terror attacks refocused the Bush administration on eliminating weapons programs such as Libya's. Mr. Obidi and other Libyan officials say Tripoli's decision to dismantle its program was driven by the fact that nonconventional weapons weren't aiding their national security. White House hard-liners believe Tripoli was driven by fear that the U.S. would attack Libya after Iraq.

In any case, deals were struck in 2003: Libya would dismantle its program, and it would pay each Lockerbie family $10 million in installments. The U.S., in turn, began to take steps including removal of Tripoli from U.S. and U.N. sanctions.

Differences quickly emerged. Mr. Obidi and other Libyan officials say they were given assurances that Tripoli would receive military aid and help in developing civilian nuclear technologies.

American and British officials say their commitments were never so specific.

Then, in 2004, there were signs that Libya was back in the terror business. In a foiled plot to assassinate Saudi Arabia's then-Crown Prince Abdullah, the hit man testified that Libyan officials were behind the plan.

Libya denied its involvement, but the State Department delayed its removal of Libya from the terrorism list. Libya, in turn, withheld the final $2 million payment to Lockerbie families. It also backed out of an agreement in 2006 to compensate victims of the La Belle attack.

This gave Congress its entree: It froze the embassy funding, and the approval of an ambassador, until the Lockerbie payments were made.

Leading the congressional charge is Democratic lawmaker Sen. Frank Lautenberg. Last summer he drew up the Justice for Victims of Terrorism Act. That bill, which passed in January, lets U.S. victims of state-sponsored terrorism target the assets of offending countries, including Iran, Syria, North Korea and Libya, and the assets of companies doing business there.

(MORE TO FOLLOW) Dow Jones Newswires

May 15, 2008 23:11 ET (03:11 GMT)

Friday, May 16, 2008

Mr. Lautenberg's office says current geopolitical considerations shouldn't take precedence over people who were killed by past Libyan aggression. "I will not rest until American victims of terrorism get the justice they deserve," Sen. Lautenberg said in a statement released by his office.

U.S. officials privately say the Bush administration was unable to protect Libya from the law because it needed to secure funding for the Iraq war, and Sen. Lautenberg's legislation was bundled inside a major defense-spending bill.

U.S. officials also note that the unresolved issue of payments to victims of Lockerbie and other attacks is what has prevented Secretary of State Condoleezza Rice from following through on her pledge to visit Tripoli, another contentious issue with Col. Gadhafi.

Supporters of the Lautenberg amendment consider it the only tool that will force Libya to meet its commitments. Thomas Fay, who represents 38 victims of the La Belle attack, says Tripoli backed out of an out-of-court settlement in 2006, just weeks after the State Department removed Libya from the terrorism list. "The Libyans could pay this stuff off" in just hours, given current oil prices, says Mr. Fay.

Seeking to revive the U.S.-Libya relationship, President Bush responded to Col. Gadhafi's letter in March by pledging to resolve the issue over the Lautenberg amendment, say Libyan and U.S. diplomats.

Meantime, Libya's complex relationship with the U.S. is at an impasse. Fawzi Saad Adam, a senior official in the Libyan government's Secretariat of Higher Education, recently described an optimistic plan to send 10,000 Libyan scholarship students overseas this year, many to U.S. schools. Like many officials in Libya's leadership, Dr. Adam himself attended university in the U.S. -- in California and Missouri -- back when the relationship was less frosty. Those were "some of the best years of my life," he says.

"We would like to go back to the old days," says Dr. Adam, who says he's still hoping to get 2,000 Libyan students to the U.S. this year. "But we have to try and work out the glitches."

(END) Dow Jones Newswires

May 15, 2008 23:11 ET (03:11 GMT)