President Bill Clinton yesterday set the stage for a new confrontation with America's allies and trading partners by signing into law a bill punishing foreign companies investing in Libya and Iran - the latter now Washington's prime suspect for the barracks bombing that killed 19 US servicemen in Saudi Arabia in June.
Britain and other European allies of the United States reacted angrily to Mr Clinton's announcement and made clear that the European Commission would consider retaliatory sanctions against Washington.
The strident complaints were almost identical to those which greeted last month's measure imposing sanctions on third country companies doing business with Cuba. But in an election year, and with public nerves already on edge at the explosion of TWA's flight 800 and the bombing at Olympic Centennial Park in Atlanta, the impact of such protests will be minimal.
Minutes after the Oval Office ceremony, Mr Clinton went to George Washington University to deliver an address in which he labelled terrorism "the enemy of our generation", and promised proposals for enlarged extradition powers, and broader authority to prosecute, in the US, people accused of terrorism against Americans abroad. Iran and Libya, he said, were the "most dangerous sponsors of terrorism" in the world.
European countries might retaliate against the US if they chose; but "before long" they would have to make up their minds whether "they can do business by day with people who turn around and fuel attacks on their innocent civilians by night". America, he declared, "had to act", even if alone.
Iran said the bill would fail. "Clinton's decision lacks international backing and is doomed to failure," a foreign ministry spokesman said.
The latest law requires Mr Clinton to impose two of six possible sanctions against companies that invest more than $40m (pounds 26m) annually in oil or gas projects in Libya and Iran. These include denying export-import bank loans, barring financial institutions from dealing in US government bonds, and a ban on federal procurement from companies involved. As with the anti-Castro sanctions, critics in Europe and North America say the sanctions violate international trading laws.
Yesterday's staged signing, witnessed by family members of the victims of the 1988 Lockerbie bombing and two former hostages held during the 1980 siege of the US embassy in Teheran, was part of a co-ordinated attempt to keep terrorism high on the campaign agenda, and were designed to draw attention from the future Republican candidate Bob Dole, and the economic plan he announced yesterday. Nor can Mr Clinton risk being portrayed as "soft on terrorism".
Only last week William Perry, the Defense Secretary, indicated that a possible Iranian involvement with the Saudi bomb was under scrutiny, while Time magazine reports that the CIA has "suspicions" that Iran might have had a hand in the explosion of the TWA jet on 17 July - although investigators have not even yet established the aircraft was sabotaged.
A Foreign Office spokesman in London said: "We cannot accept US pressure on its allies to impose sanctions under the threat of mandatory penalties."
For European governments, it is a matter of principle that they should resist attempts in Washington to punish companies and commercial activities that lie outside US jurisdiction.
A French Foreign Ministry spokesman, Yves Doutriaux, said France was determined to ensure "that any damage does not go without retaliation".
France could be particularly affected by the US decision as one of its largest companies, Total SA, signed a $600m (pounds 400m) deal last year to develop Iran's offshore Sirri oilfields. The company also has stakes in two oilfields in Libya.
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