SYDNEY -- An international scandal revealing Australia's role in the Iraq food-for-oil coverup is costing good will in Washington and could affect agricultural exports to the key Japanese market.

Dubbed Canberra's Wheatgate, a U.N. organization's revelation of double-dealing with Saddam Hussein's regime has already resulted in Australia's wheat exporter being banned from using U.S. credit programs.

Now the trader is losing markets in Iraq, where Australia is supporting coalition troops, while the new Baghdad government is demanding the return of millions of dollars in kickbacks.

Whether Prime Minister John Howard can lean heavily enough on his "special relationship" with U.S. President George W. Bush to avoid a fiasco in the grain trade remains to be seen.

Wheatgate will cost Australia's trading reputation dearly. First to lose in dollar terms are Australian farmers. Early gainers will be their international market competitors -- American and Canadian farmers. Already Australian wheat growers have lost big contracts in Iraq to North American competitors. But the ultimate loser could be the Howard government.

Wheatgate is an unexpected blow to Howard. He has long stayed aloof from the murky world of trade deals in pre-invasion Iraq. Like Australia's grain sales to China through the worst years of Chairman Mao's excesses, Australia's wheat trade with Iraq has long annoyed Washington. But with Iraq accounting for up to 20 percent of farmers' export income, Canberra turned a benign -- some say, blind -- eye.

Hell broke loose, however, when U.N. Secretary General Kofi Annan released details of an international inquiry into the now infamous Iraq food-for-oil deals. Known as the Volcker inquiry after the chief investigator, former U.S. Federal Reserve Chairman Paul Volcker, the fine-print details show Australia at the top of the dollar list of traders doing food deals with Baghdad during the runup to the American-led coalition toppling of the Hussein regime.

Atop the Australian list was AWB, a privatized monopoly formerly known as the Australian Wheat Board. The Canberra-blessed single-desk trader, with its monopoly powers over the export of Australia's multibillion dollar wheat sales, has long been the bane of the U.S. farm lobby in Washington. Its ability to outsmart a bevy of competing American traders has been criticized as unfair. Since the Volcker revelations, American lobbyists are howling for AWB blood.

"We never knew" is the AWB's refrain. Few outside or inside Australia believe that tune. Howard has ordered a full inquiry. At the nub of the probe will be the question of how $222 million in "inland transport fees" got paid to a Jordanian-based transport company, since shown to have been a collector of Hussein's funds, for trucking AWB wheat into Iraq.

The 623-page Volcker report accuses more than 2,300 companies and individuals from 66 countries of paying bribes and kickbacks to Hussein under a scheme originally started as a humanitarian undertaking. By the time the oil-for-food program was scrapped in 2003, Hussein's coterie had pocketed an estimated $1.8 billion.

Big-brand companies and politicians from dozens of countries are implicated. Unhappily for Canberra, the company named as the chief agricultural provider of kickbacks, worth 14 percent of the dirty total, is AWB.

AWB managing director Andrew Lindberg claims the Volcker report supports his position that the monopoly did not know that the increasing amount of trucking funds they were paying was being diverted to Hussein. He insists that AWB did not suspect corruption, despite trucking costs jumping from $12 a ton to $56.

"It appeared reasonable at the time to pay fees in the knowledge that every contract had the explicit approval of the United Nations," Lindberg said.

Jordanian trucking firm Alia was used as the vehicle for kickbacks. The Iraqi Grains Board required AWB to use Alia to deliver grain to Baghdad. The Iraqi board siphoned off Hussein's share of the fast-rising charges.

More devious details will surface soon when a Howard-ordered Canberra inquiry gets under way. Former Supreme Court Judge Terence Cole, who heads the inquiry, has refused to rule out calling government witnesses to explain their role in the kickback scheme. Howard insists there is no reason to suspect his government of any wrongdoing.

In Baghdad, Deputy Prime Minister Ahmed Chalabi has suspended orders for Australian wheat worth A$800 million. He told Australian reporters the new government believes that AWB must have known its transport charges were being funneled to the Hussein regime. "The justifications they make are lame," he said. "The excuses are lame."

Chalabi wants Australia to compensate Iraq for the skimmed $222 million that "belongs to Iraq and the Iraqi people." A controversial politician, it was Chalabi who supplied Washington with much of the flawed intelligence that enabled Bush to make the case for the Iraq war. Chalabi recently announced that U.S. farmers, long shut out of the Iraqi wheat market, had won a contract to supply 1 million tons. This signaled the end to Australia's virtual monopoly in that market.

Australian farmers, often at two minds over the AWB's monopoly powers, are bracing for severe financial punishment. The Financial Review says they deserve "some sympathy": "Obscene export subsidies from the U.S. and European governments to their wheat industries have forced AWB to cultivate challenging markets such as Iraq."

Caught up in the backbiting is the Howard government. The Cole inquiry will be looking into how far the Department of Foreign Affairs and Trade, and specifically its minister, Mark Vaile, was involved in the kickbacks.

Vaile had congratulated AWB executives on their controversial "dash to Baghdad" in August 2002, only seven months before the first bombs fell. Headed by AWB chairman Trevor Flugge, this posse met then Trade Minister Mohammed Medhi Saleh, later to become the "six of hearts" in Washington's "most wanted" pack of cards. Saleh agreed not only to restore a canceled Australian wheat contract but also to buy more grain at higher prices.

Returning to Australia, posse member and AWB marketing manager Michael Long announced: "The Iraqis decided to reinstate the trade out of respect for the Australian people."

Minister Vaile's praise for the profitable "dash to Baghdad" will doubtless be closely examined by the Cole inquiry for any Canberra finger in the Iraq wheat pie. In fact, few people are expected to emerge uncovered with dust from Cole's sifting of grain from chaff.

Already the U.S. Department of Agriculture has suspended AWB from its Supplier Credit Guarantee Program, thus depriving the biggest single wheat trader in U.S. futures markets of the use of taxpayer-funded credit guarantees.

Canberra may well be forced to examine whether AWB should lose its monopoly in exports. Australia could, if this happens, have to compete more evenly with North American shippers for such markets as Japan.