Government Affairs Update
Natural Gas: the Good, the Bad and the Ugly
The Good: There is an ample supply of shale gas containing ethane that could fuel a rebirth of American chemical manufacturing. You can read more about this in Dow’s April 21 announcement (www.businesswire.com/news/dow/20110421005924/en).
The Bad:There are numerous moves to impose moratoria and other regulatory restrictions on shale gas production. Meanwhile, the permitting of offshore oil and gas production continues to be less than needed to sustain healthy supply growth.
The Ugly: 182 members of the U.S. House of Representatives have co-sponsored the NAT GAS Act (HR1380), which would create taxpayer-financed incentives to grow natural gas use as a transportation fuel. In addition, 86 of these members routinely vote against any measures to increase domestic supply. This taxpayerfinanced demand, when coupled with fuel switching from coal in power plants and constraints on drilling, could drive up natural gas prices and volatility, thereby damaging the potential for manufacturing growth. Take Action: Write to your congressmen, and tell them to oppose HR 1380 and any other legislation that would distort the natural gas market. To learn more about natural gas and to take action, visit the Dow Action Network at www.congressweb.com/cweb2/index.cfm/siteid/dow.
Progress on Trade Bills: the Benefits to Dow
After a number of procedural difficulties, the U.S. Administration and Congress are finally moving forward to a vote on three long-pending Free Trade Agreements (FTAs).
U.S.-Colombia Free Trade Agreement
The U.S. and Colombia have announced an action plan to address concerns in the pending U.S.-Colombia Free Trade Agreement. The action plan sets out specific dates for legal and judicial requirements to support a higher standard of labor rights in Colombia. Colombia has met all obligations under the action plan to date. For Dow, the FTA will significantly reduce tariffs on over $220 million in U.S. exported products. When enforced, 90 percent of tariffs on Dow exports will drop to zero, resulting in $14 million in savings. Dow issued a statement of support for the agreement.
U.S.-South Korea Free Trade Agreement
The Administration recently announced a compromise deal with Congress that would include a renewal of the Trade Adjustment Assistance (TAA) Act, a program designed to provide additional support to workers displaced by trade. TAA renewal will be integrated with the U.S.-South Korea (KORUS) agreement.
For Dow, KORUS is critical to significantly reducing tariffs on required inputs for establishing the Dow Kokam manufacturing plant. In addition, the agreement will further reduce Dow tariffs on a wide range of exports, as well as reducing tariffs and creating market access for our South Korean customers to further expand their production.
As part of the business coalition, Dow is actively supporting expedited passage of these pending agreements.In mid-March, the President’s Export Council (PEC) held its third meeting. It followed up on previous recommendations for export control reform, Russia’s World Trade Organization (WTO) accession and the three pending FTAs. The meeting also included new areas of recommendation, including support for transportation infrastructure upgrade commitments, full reauthorization of the Export-Import Bank, improvement on business visa processing and support for small businesses.
As chair of the global competitiveness subcommittee, Dow Chairman and CEO Andrew Liveris championed a letter defining the 21st century trade roadmap and included detailed recommendations for progress on the TransPacific Partnership.
To learn more about trade, visit the Dow Action Network: www.dowaction.com/legalissues/trade/index.html.
Tax Reform: the Need for a More Globally Competitive Tax System
The U.S. marginal tax rate for corporations is the second highest in the world. On account of the federal budget deficit and the serious need to update the federal tax code, both Congress and the Obama Administration have embarked on a multi-year journey to reform the federal tax code. Ways and Means Committee Chairman Dave Camp (R-MI), who represents Dow’s headquarters in Midland, has been particularly active on this issue as head of the committee with primary responsibility for drafting tax laws within the House of Representatives.
Dow’s Position
Dow’s efforts on tax reform have also intensified. The Company is supporting a comprehensive set of corporate reform principles that focus on an internationally competitive corporate tax rate of 24-28 percent (including state and local taxes) and adoption of a territorial system for taxing global earnings of U.S. companies to be more in tune with the rest of the world.
Additionally, while Dow recognizes that many tax incentives will be eliminated to bring the tax rate down to this more competitive level, Dow supports the retention of incentives for conducting research in the U.S. Dow’s Chief Financial Officer Bill Weideman and Chief Tax Officer Bill Curry have met with Treasury Secretary Geithner and other Treasury officials a number of times explaining the need for enactment of these proposals.
Moving Forward
Dow’s proposal has been generally well received in Congress and even in large part by the Administration. Still, setting the appropriate tax levels for U.S. corporations, particularly in the current budget deficit environment, is complex. Dow’s strategy remains focused on provisions that address the need for more investment in the U.S., the high cost of hiring new employees in the U.S. and the adverse impact of the high U.S. marginal tax rate and territorial tax system on the competitiveness of U.S. companies with those based outside the U.S.
The current tax reform effort is also focusing on changes to the individual income tax system. In the context of this debate, the Third Way, a moderate research organization, has developed a program that you can use to create your own tax receipt at: www.thirdway.org/taxreceipt.