Without
hearings and with little warning, the US has approved a new tax on some
government contracts with foreign suppliers.
The
tax is part of a bill signed on Sunday by President Barack Obama providing aid
for workers who responded to the 2001 terrorist attack in New York.
New
US contracts with foreign companies will be subject to a two percent tax if the
goods or services purchased come from countries such as China, the UAE and
Kuwait that aren’t part of the World Trade Organization’s Agreement on
Government Procurement.
The
tax’s likely targets include Middle Eastern oil companies such as Abu Dhabi
National Oil Co. and the Kuwait Petroleum Corp. that sell fuel to the US
military overseas. The effects won’t be determined until the government writes
rules for assessing and collecting the tax.
“It
will be a giant pain to implement,” said William Reinsch, president of the
National Foreign Trade Council in Washington, which advocates for open
international markets.
Business
groups, including the US Chamber of Commerce, unsuccessfully tried to derail
the tax, saying they were concerned about retaliation from other countries. The
House and the Senate passed the bill December 22.
According
to a December 20 statement from Senator Gillibrand’s – one of the backers of
the bill – office, the tax would have several benefits. It would encourage
countries to join the WTO agreement, promote competition for contracts and give
US agencies an incentive to use US companies as contractors, the statement
said.
The
tax will raise $4.6bn over 10 years, according to the Congressional Budget
Office.
Based
on the statutory language, the tax could apply to some of the largest US contracts
with foreign suppliers.
For
example, Abu Dhabi National Oil and Kuwait Petroleum each have fuel
distribution contracts with the Defense Logistics Agency.
Agility,
a Kuwait-based logistics company, has contracts to supply food to the same
agency. In 2010, those companies each received more than $1bn through September
30, according to data compiled by Bloomberg. None of the companies replied to
requests for comment.
The
Defense Department is studying the effect of the tax, spokeswoman Cheryl Irwin
said in a statement. The department “will determine how to best implement in
the very near future,” she said.
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