Environmental Regulations and Corporate Strategy: A NAFTA Perspective. - Review - book review

Administrative Science Quarterly, Dec, 2000 by Lance Compa

Alan Rugman, John Kirton, and Julie Soloway. New York: Oxford University Press, 1999. 258 pp. $75.00.

What can proponents of liberalized international trade do about barriers to trade erected in the name of environmental protection? What can corporate strategists do to expand their firms' trade opportunities in new institutional frameworks linking trade and environmental protection? The Canadian authors of Environmental Regulations and Corporate Strategy address these questions from backgrounds in management studies, economics, political science, international relations, and law. Drawing on each discipline, they set out an ambitious goal: "a new and unified model" for corporate strategy and public policy that reconciles trade promotion and environmental concerns.

Part 1 sets an analytic context relating corporate strategy, legal rules, and political science perspectives, recounting several case histories, including beer, fish, and softwood lumber disputes between the United States and Canada. Part 2 is devoted to firms' strategic responses to "regulatory protectionism" through their use of new institutions and instruments created by the North American Free Trade Agreement (NAFTA) and its environmental side agreement, the North American Agreement on Environmental Cooperation (NAAEC). Part 3 treats three case studies in depth, including a look at the critically important North American auto industry. The book's conclusions urge corporate strategists and public policymakers to see opportunities, not obstacles, in new "conditions of complex institutional responsiveness" under NAFTA (p. 3).

The authors might have overreached. It is not clear what is new or unified about a firm, a government, or any interest group assessing a complicated set of options and choosing what appears to be the best course of action to achieve its goals. NAFTA adds a new institutional layer, but, as the authors point out, other international mechanisms like the General Agreement on Tariffs and Trade (GATT) and earlier bilateral trade agreements already existed alongside domestic rules and regulations affecting trade and the environment. Whether the authors succeed fully in articulating a new grand scheme, however, the richness of their case studies and the thoroughness of their analyses make Environmental Regulations and Corporate Strategy a valuable guide to action in the new world of trade and environmental linkages. This book is intended for trade-law specialists, corporate managers, government officials, and policy experts in international organizations involved in the dynamics of regional and global economic integr ation. But in addition to these, the book should also be read by environmental, human rights, and labor rights advocates for its insights into the relationship between trade and social standards.

Rugman, Kirton, and Soloway examine trade disputes based on environmental claims that arose among the United States, Canada, and Mexico in the first four years of NAFTA. They also treat earlier disputes between the United States and Canada under those countries' Free Trade Agreement (FTA) and occasionally look comparatively at trade conflicts between North America and Europe. Most of the disputes involve agriculture, but in a key chapter, the authors give special attention to a conflict that arose when Canada banned importation of the fuel additive MMT on environmental grounds. The ban prompted a challenge under NAFTA from the U.S.-based manufacturer of the product that exported it to Canada. This case of conflicting environmental claims, conflicting scientific evidence, and conflicting corporate interests among chemical producers, oil companies, and auto manufacturers (who supported the ban on MMT, arguing that the additive harmed catalytic converters) lays bare the tension between trade liberalization and e nvironmental protection.

Where environmentalists' goals coincide with the interest of domestic companies in excluding foreign products, the authors deem it a "green and greedy" coalition. They also liken it to a "Baptist-bootlegger" coalition, in which one group supported prohibition because it made alcohol sales illegal while the other supported prohibition because it made its illicit alcohol sales super profitable. Such characterizations are too dismissive, suggesting that environmentalists and domestic companies create a protectionist conspiracy to keep out foreign products. While from time to time such groups may arrive at the same policy conclusions, the suggestion of evil intent implicit in the authors' casting of such coalitions is unwarranted without evidence of the alleged conspiracy.

An important and valuable chapter is devoted to the environmental commission set up under a side agreement to NAFTA, the North American Agreement on Environmental Cooperation (NAAEC). With its labor counterpart, the North American Agreement on Labor Cooperation (NAALC), the side agreements came under intense criticism when they were adopted along with NAFTA. "Toothless" and "fig leafs" were among the milder characterizations applied by NAFTA critics to this new international agreement, in which governments pledged to effectively enforce their national environmental laws. At the same time, they opened themselves up to critical reviews of their environmental law enforcement record by each other and by independent, non-governmental investigative bodies. As the authors concede in their comprehensive account of this new body, results are mixed. International oversight cannot swiftly eliminate environmental hazards any more than domestic law enforcement has been able to do so. The authors' balanced accounting of th e NAAEC commission's record in its early years provides valuable lessons on the challenges, accomplishments, and shortfalls of this new institution-a story that is still unfolding. After the period studied here, the NAAEC commission suffered severe internal turmoil. The environmental ministers of the three NAAEC countries ultimately fired the commission's executive director to underscore their intent that the ministers tell the commission what to do, not vice versa.