Bush threatens reprisals over EU arms sales to China

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Divisions over Iran, the future of Nato and EU plans to lift an arms embargo against China yesterday cast a shadow over carefully stage-managed efforts to heal the transatlantic rift.

Divisions over Iran, the future of Nato and EU plans to lift an arms embargo against China yesterday cast a shadow over carefully stage-managed efforts to heal the transatlantic rift.

At the end of a two-day visit to Brussels by George Bush, the EU and the US parted with pledges to work more closely together but without resolving a number of key disagreements.

Speaking after talks with the 25 EU heads of government, Mr Bush sent mixed messages over US thinking on diplomatic moves to dissuade Iran from acquiring nuclear weapons. The US president argued: "This notion that the US is getting ready to attack Iran is simply ridiculous. Having said that, all options are on the table."

Mr Bush's visit to Brussels had been billed as a symbolic gesture from Washington, underlining the willingness of the US president to take Europe's views on board. But despite the snow and freezing temperatures around 1000 protesters turned out to demonstrate against Mr Bush, prompting the Belgian police to deploy water cannon.

Thorny issues intruded on the pre-scripted declarations of reconciliation, as the US president stated his opposition to European plans to end a 15-year-old arms embargo against Beijing.

Hinting that the US Congress might retaliate by curbing technology exchanges with the EU, Mr Bush argued that there is "deep concern in our country that the transfer of weapons would be a transfer of technology to China, which would change the balance of relations between China and Taiwan."

The president said he looked forward to seeing EU plans to restrict exports by tightening a code of conduct, adding: "they need to make sure that if they do so they can sell it to the US Congress.

"Congress will be making the decision on how to react about what some will perceive to be a technology transfer."

EU officials are preparing missions to Washington and the Far East and remain confident they can produce a mechanism of consultation which will satisfy US sensitivities over specific exports. Most believe that the plan to lift the arms embargo before July remains on track though one official said: "There is no way that we will ever satisfy the US Congress".

The French president, Jacques Chirac, laid out the position backed by all big EU member states including Britain, saying that the embargo could no longer be justified. M Chirac pointed out that Australia lifted its measures a decade ago and that Canada had never introduced a ban.

Personal relations between Mr Bush and M Chirac appear to have been revived over dinner at the US embassy on Monday night. Mr Bush said he might invite the french president to his ranch in Texas, joking he needed a good "cowboy", a comment accepted by M Chirac as a compliment.

The French president said he believed that the US is now willing to listen to European concerns and preoccupations. However he added: "The future will tell whether I am wrong".

M Chirac backed controversial calls by the German Chancellor, Gerhard Schröder for a change to the structure of dialogue between Europe and the US. Mr Schröder last week provoked a dusty response from Washington when he suggested that Nato was outdated.

But M Chirac said: "Things evolve and one must adapt. He has made a legitimate proposition and I support Chancellor Schröder's proposition."

That struck a different tone from Tony Blair who, after breakfast with the US president, joined Mr Bush in hailing the alliance as the "cornerstone" of the transatlantic relationship.

However there was pre-scripted progress on Iraq. The EU offered to stage a conference to rally international support for Iraq together with the US. The meeting would "provide a forum to encourage and coordinate international support for Iraq", the summit's host, Jean-Claude Juncker, the Prime Minister of Luxembourg, said.

In addition, Nato issued a declaration stressing that all 26 of its members are participating in the effort to rebuild Iraq. That statement glossed over the fact that France has insisted its training of gendarmes in Qatar is a bilateral effort and not part of the overall Nato structure.

After mini-summits at Nato and the EU, Mr Bush dined with the European Commission president, Jose Manuel Barroso, and a small group including the British Commissioner, Peter Mandelson. Ahead of the dinner of lobster and lamb, Mr Barroso said: "Europe and America have reconnected", adding that the "challenge is to turn this new spirit into reality".