November 24, 2003 -- WITH $8 billion a year in trade and a deal pending to up that ante even more, the European Union is Iran´s largest trading partner. And it appears that the E.U. - led by France, Germany and Britain - may now value those trade privileges over the principle of opposing the proliferation of nuclear weapons.

The U.N. nuclear watchdog, the International Atomic Energy Agency (IAEA), reported recently that Iran had secretly manufactured small amounts of highly-enriched uranium and plutonium - violating the Nuclear Nonproliferation Treaty. Further, the report noted, Tehran had deliberately hidden the evidence from the IAEA for almost two decades.

The E.U. reaction? It wants to give Iran a chance to put the nuclear genie back in the bottle. Figure the odds of that happening.

Specifically, the European Union opposes a get-tough U.N. resolution on Iran´s nuke program, discussed last week at the IAEA meeting in Vienna. (The talks were so divisive; they will continue again this week starting Wednesday.)

Secretary of State Colin Powell warns that the Europeans are being too lenient with the Iranians. He wants Iran´s nuclear transgressions referred to the U.N. Security Council for action, including possible economic sanctions.

Clearly, the E.U. has no stomach for another diplomatic showdown on the scale of Iraq for the moment. But if the international community fails to take tough action now against Iran, Tehran will join the nuclear club before you can say "ayatollah."

How? Here´s a dirty little secret from the rogue regime playbook: The U.N.´s Nuclear Nonproliferation Treaty (NPT) has a dangerous loophole. Under the guise of a peaceful, civilian nuclear energy program, a state can openly develop - right under the nose of the IAEA - most of what it needs for a nuclear-weapons program. It worked for North Korea and it´s working for Iran today.

On this side of the Atlantic, heart palpitations are in order when contemplating nukes in the hands of a regime that is:

* The world´s most active state sponsor of terrorism,

* Bent on the destruction of the United States and Israel, and

* Aspiring to dominance in the Persian Gulf.

But E.U. hearts appear unfluttered by all that. The top concern of Europe´s leaders seems to be preserving - and expanding - lucrative trade relationships with Tehran.

Iran has the world´s third- largest oil reserves. So far, European firms have invested $10.5 billion in those fields. But 50 percent to 70 percent of the profits from those investments - everything the investors don´t collect -go directly to Tehran´s treasury.

From there, the money funds such nefarious activities as political repression, acquisition of weapons of mass destruction (nuclear, chemical and biological) and terrorism - most often directed against Israel.

But back to Iran´s nukes. Only a united international front can contain the mullah´s atomic efforts. If we don´t address Iran´s nuclear ambitions with vigor and verve, we´ll end up in the same situation we have today with North Korea, where a nasty regime possesses nasty weapons.

If the international community is serious about preventing the spread of the world´s most dangerous weapons, here´s what it must do in the short-term:

* The 35-member IAEA should declare Iran in violation of the Nuclear Nonproliferation Treaty (NPT) and forward the resolution to the U.N. Security Council (UNSC) for action.

* The UNSC should set strong terms for compliance, including no- notice inspections and intrusive monitoring.

* Any Iranian noncompliance should trigger immediate multilateral U.N. economic sanctions.

* The E.U. must freeze its pending trade pact with Iran until Tehran demonstrates - not just promises - that it no longer seeks to become a nuclear power.

If Iran has, indeed, decided to come clean on its "peaceful" (ha!) nuclear program, sanctions and other confrontational moves may not be required - over this issue.

But even so, Iran´s trading partners should stop closing their eyes to the deeds that commerce with Iran is supporting, and adjust accordingly. Because giving each other the runaround on Iran, isn´t in anyone´s interest - except Tehran´s.

Peter Brookes is a Heritage Foundation senior fellow. E-mail: peterbrookes@heritage.org (Copyright 2003 NYP Holdings, Inc. 11/24/03)