InterviewObama budget may devastate US chems - Eastman CEO

17 April 2009 20:34  [Source: ICIS news]

By Ben DuBose

HOUSTON (ICIS news)--The Obama administration’s proposed budget blueprint could be “potentially devastating” to the US chemical and manufacturing sectors by putting them at a disadvantage with global competitors, Eastman Chemical chairman and CEO Brian Ferguson said on Friday.

“When you look at the administration’s proposed budget blueprint in total, you start to see how potentially devastating it could be to the American chemistry and manufacturing sectors, and to the millions of jobs they provide,” Ferguson said.

“Politicians have the ability to make their ideas and proposals sound good in theory, but that’s not always the case when they are put into practice,” he added. “Oftentimes they have deep and damaging consequences. It’s important that we make our case heard now before these policy directives become law.”

Ferguson said that an analysis from the American Chemistry Council (ACC) indicated the budget impact could cost the US chemical industry $120bn (€91bn) over the next 10 years, or equivalent to a 53% increase in taxes paid.

That analysis evaluated the impacts of taxes including the cap-and-trade proposal, expected switching to alternative fuel sources and the elimination of oil and gas tax incentives.

Additionally, the evaluation included the repeal of the LIFO (last in, first out) inventory accounting method in taxes. Under LIFO, it is assumed that companies sell newest inventory first. Without it, companies could be at risk of skewed pricing evaluations in their tax reports since the cost of a product at the time of a sale could be very different than when it was acquired.

Also, the evaluation included the repeal of rules that allow tax deferral on earnings from foreign operations and the reinstatement of the Superfund environmental clean-up tax on certain chemical feedstocks, Ferguson said.

“At the end of the day, manufacturers must be able to compete globally,” Ferguson said. “These increased taxes and additional costs will force companies to make tough operational choices. With these added burdens, unmatched by foreign competitors, we are sure to lose even more.”

The cap-and-trade proposal, which would tax US companies using fossil fuels, could be “crippling” to US manufacturers, Ferguson said.

“These are additional costs that foreign competitors who import into the US wouldn’t have to bear,” he said. “We must have an energy policy that takes this into account and does not put us at further competitive disadvantage.”

A recent study from the nonpartisan research group Resources for the Future that indicated that as many as 40% of vulnerable industries, including chemical manufacturing, could leave the US over time as a result of proposed policies.

“Our country is concerned about energy security and independence,” Ferguson said. “This data should have us equally concerned about manufacturing security and independence.”

Moreover, Ferguson said chemical companies in particular were already contributing to the administration’s desire for greater energy efficiency through the production of products such as building insulation, solar panels, plastics contributing to lightweight vehicles, reflective coatings, and energy-efficient light bulbs.

“We [as chemical companies] need to let our legislators know that we want to be part of the solution,” he said.

“It’s important that the administration knows that we’re working toward the same objectives of developing a responsible energy policy, creating jobs for Americans, and growing our economy. We just want to find the common ground that will allow us to achieve these goals without compromising the competitiveness of our existing industries.”

Ferguson said chemical manufacturers remain “a bedrock of American industry”.

To that end, he urged executives throughout the industry to analyse the potential consequences of the proposed budget and its effects on their particular businesses, and then consider if it’s important enough to take action, such as the editorial on the subject Ferguson recently wrote in the Knoxville News-Sentinel.

“I think they’ll see that it is,” he said.

“This isn’t about profits. We’re talking about jobs and the long-term viability and competitiveness of the US chemical industry. All we’re asking for is a level playing field and legislation that’s not tilted in favour of the competition.”

($1 = €0.76)

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By: Ben DuBose
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