I go for C. Apart from the reasons outlined by Paul and others in favour of C, I think the Intent
of the sentence also matters.
One thing we get out of the sentence is that - Carter had some directive THAT Reagan Annulled(rescind).
Having said that, A,B, and E flows as though it is Carter's directive to prohibit sale of banned chemicals. Read the sentence again and you'll notice '...Carter's directive that....'.
So, sentence corrected using prohibiting I think makes the right impact. If you guys think that I have thought too much(or too little), let me know - I will take some much needed rest.