New Taxes Could Sour Chemical Industry

PRESIDENT Clinton's proposed new taxes would harm the competitiveness of the United States chemical industry, the country's leading exporter, at a time of relentless challenge in the global marketplace, industry spokesmen warn.

"We're by no means invulnerable," says Allen Lenz, an economist with the Chemical Manufacturers Association (CMA). "We've been a very significant contributor to the US trade balance. But competition gets tougher every year."

Consumers are generally oblivious of the chemical trade that employs 1.1 million Americans and provides the raw materials for spandex jogging clothes, nylon toothbrush bristles, and plastic mobile telephones.

Yet chemicals were a $1.2 trillion industry worldwide in 1991, the CMA notes. The US led output with $285 billion in sales, followed by Japan with $165 billion.

Although growth has slowed , the US chemical industry still betters the Gross Domestic Product by 1.25 percentage points.

Last year US exports of chemicals rose to a record $44 billion. But imports rose even faster, causing 1991's surplus of $18.8 billion to shrink to $16.3 billion, Mr. Lenz says. The US lost ground in seven of the nine major chemical groups, including the three largest: basic petrochemicals, agricultural, and plastics.

"Prices are set by global supply and demand. A relatively small movement can have significant implications for the industry's export position," Lenz says.

Every industrialized country has its own chemical industry, and every developing country wants one, because chemicals are the foundation of other manufacturing industries. Even countries which lack oil and gas resources, like Taiwan and South Korea, are getting into chemicals, Lenz says.

"Global competitiveness is a top issue for us," notes Matt Davis, a spokesman for the Dow Chemical Company, the nation's second-largest chemical manufacturer. "Anything that impacts our ability as a US-based company to compete is going to have repercussions around the world."

That is why the US chemical industry is wary of Mr. Clinton's proposed tax on energy consumption. Under the tax, users would pay 25.7 cents per million British thermal units on their coal and natural gas, and 59 cents per million Btu on their crude oil.

The chemical industry is the nation's largest user of energy resources, consuming 7 percent of the total. The industry uses about half the oil and gas it needs as feedstock, which it transforms into chemicals. That portion would be exempt from the tax.

However, the industry's annual $10.2 billion fuel bill would rise by $1.2 billion, the CMA estimates. Lenz calls that "a fair-sized hit."

"There needs to be an exemption for industrial fuels, or else our operations are going to become much less competitive with foreign companies," says Tom Mueller, a spokesman for Amoco Corporation.

Clinton's proposal to increase the corporate tax would add a separate burden to the chemical industry of up to $500 million annually, Lenz says.

"We sometimes make these initiatives as if we were still dominant in world manufactures trade as we were 20 years ago," Lenz says. "Some tax law or policy change that alters the cost of producing goods in the United States a relatively small percentage may now have a very significant impact [on exports]."

Lenz says the extra burden from the tax means some US companies will not be able to compete, and others will have to move production overseas. The new taxes, the CMA says, would mean 3 percent less growth in output by the year 2000, and creation of 9,900 fewer direct jobs and 8,300 indirect jobs.

Steve Smith, a spokesman for the American Institute of Chemical Engineers, notes that the industry has been good to work for. The AIChE's 56,000 members earned a median salary of $59,700 in 1992 and experienced only 2.1 percent unemployment.