A Senate proposal to apply a 2% fee to certain foreign-based U.S. government contractors could affect Gulf state oil companies that sell fuel to the U.S. military, as well as Chinese and Indian companies.
The proposal is part of legislation from Sens. Charles Schumer and Kirsten Gillibrand, both New York Democrats, that would compensate rescue workers who responded to the Sept. 11, 2001, attacks, and their families. Some of those workers died or have suffered illness related to their rescue efforts.
The bill has met with opposition from Republicans about the size of the compensation fund, which some Republicans argue is too large, and the 2% procurement fee.
Senate Majority Leader Harry Reid (D., Nev.) planned to bring the bill up for a procedural vote as early as Tuesday, a spokeswoman said. It is unclear whether the measure has support from 60 senators, the number needed to overcome procedural hurdles.
The fee would apply to contracts for goods or services provided in countries that are not members of the World Trade Organization’s government procurement pact — a list that includes Brazil, China, India, Iraq, Saudi Arabia, Kuwait, Qatar and others.
Such contracts total as much as $35 billion to $40 billion per year, according to a fact sheet released by Schumer. The 2% fee would raise $4.5 billion over 10 years to partially offset the cost of the Sept. 11 rescue workers fund.
Many of the largest foreign-based federal contractors — such as UK-based Rolls Royce Plc (RYCEY, RR.LN) and Italy’s Finmeccanica (FNC.MI) — would not be affected because they are located in jurisdictions that are members of the WTO government procurement deal.
In part because of domestic sourcing requirements for U.S. military apparel and supplies, Chinese and Indian companies are not a major player in the federal contracting arena. But passage of the bill could nonetheless ruffle feathers abroad at a time when U.S. firms are trying to win inroads into the Chinese procurement market.
U.S. business groups warned Tuesday the proposed fee could prompt China, India and others to retaliate with their own restrictions on government contracts.
“As a result, there would more than likely be net loss for U.S. exports, U.S. companies and U.S. jobs if this provision became a model for foreign governments,” wrote the groups, including the Emergency Committee for American Trade, the National Foreign Trade Council, and the Organization For International Investment.
The U.S. and Western trading partners have put pressure on China to join the WTO government procurement deal, but have rejected recent Chinese proposals as inadequate. Unlike most WTO rules, WTO members have the option to join the procurement pact or not.
Sen. Tom Coburn (R., Okla.) planned to try to block the Schumer Sept. 11 rescue workers’ bill, according to an aide. Coburn wants the bill to be funded by spending cuts, and wants to send the bill to committee for further review.
— By Martin Vaughan, Dow Jones Newswires; 12/21/2010; Danny Yadron contributed to this article.