The report by the House Armed Services Committee will serve as a basis for debate over the 2006 US military budget, due to take place later in the week.

The report states that the US secretary of defense should be barred from entering into a contract with a foreign person or organization "which has received a subsidy from the government of a foreign country that is a member of the World Trade Organization."

The provision in effect prohibits all contract agreements with EADS, which is fiercely competing for Pentagon contracts, and would effectively give rival US aerospace giant Boeing a boost in the bidding.

The House also intends to bar the Pentagon from cooperating with companies that are breaking an embargo on arms sales to China.

The measure would "create disincentives for potential arms exports to China by denying sellers access to Department of Defense procurement opportunities."

The Republican-controlled House should vote this week on its version of the defense budget, which is likely to rise to around 442 billion dollars. The defense budget would then be examined by the Senate, which could provide its own modifications.

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