Campbell, Laura B.

Madrid-Crost, Mary Carmin

English

Case Western Reserve University School of Law

Canada-United States Law JournalVolume 18 | Issue Article 30January 1992The Competitive Effects of U.S. and Japenese AutoEmission Standards: Are Strong EnvironmentalRegulations the Reason Japanese Cars SellThemselvesLaura B. CampbellMary Carmin Madrid-CrostFollow this and additional works at: https://scholarlycommons.law.case.edu/cusljThis Speech is brought to you for free and open access by the Student Journals at Case Western Reserve University School of Law Scholarly Commons.It has been accepted for inclusion in Canada-United States Law Journal by an authorized administrator of Case Western Reserve University School ofLaw Scholarly Commons.Recommended CitationLaura B. Campbell and Mary Carmin Madrid-Crost, The Competitive Effects of U.S. and Japenese Auto Emission Standards: Are StrongEnvironmental Regulations the Reason Japanese Cars Sell Themselves, 18 Can.-U.S. L.J. 287 (1992)Available at: https://scholarlycommons.law.case.edu/cuslj/vol18/iss/30The Competitive Effects of U.S. and Japanese Auto EmissionStandards: Are Strong Environmental Regulations theReason Japanese Cars Sell Themselves?Laura B. Campbell *Mary Carmin Madrid-Crost **I. INTRODUCTIONA recurring argument of many U.S. businesses is that strict environmen-tal standards in the United States reduce their ability to compete inthe international marketplace due to the costs of achieving compliance.In response to these concerns, Vice President Quayle's Council on Com-petitiveness has aimed to limit implementation of environmental regula-tions in order to enhance the ability of American companies to compete.During the Earth Summit held in Rio de Janeiro in June 1992, PresidentBush refused to sign a treaty on biodiversity joined by every other indus-trialized country based on his concern over the treaty's potentially nega-tive effects on the competitiveness of American companies of aninternational regime linking protection of biodiverse areas and the devel-opment of biotechnology and pharmaceutical products.In an era of global markets, the effect of stringent environmentalregulation on an industry's ability to compete internationally is an im-portant issue for policymakers to address in setting domestic environ-mental standards. This article looks at the evolution of U.S. andJapanese automobile emission standards since 1970, in order to assess thecompetitive effects of environmental regulation on an important segmentof American business: the auto industry. It is acknowledged that anumber of other factors have influenced the relative market shares ofU.S. and Japanese car companies. However, the purpose of this article isto explore whether auto emission standards in the United States and Ja-pan affected the competitive positions of the auto industries of eachcountry.II. EXECUTIVE SUMMARYWhile the United States enacted stringent auto emission standardsin 1970, it failed to implement these standards, largely because of com-* Deputy Coordinator, Ozone Secretariat, United Nations Environment Programme (Nairobi,Kenya); Professorial Lecturer in International Environmental Law, the National Law Center,George Washington University (Washington, D.C.).** 1992 Candidate for Masters Degree in Comparative Law, the National Law Center, GeorgeWashington University (Washington, D.C.).1Campbell and Madrid-Crost: The Competitive Effects of U.S. and Japenese Auto Emission StandaPublished by Case Western Reserve University School of Law Scholarly Commons, 1992CANADA-UNITED STATES LAW JOURNALplaints by industry that meeting them was technically infeasible. In fact,the strict "new" nitrogen oxide standard included in the 1990 Clean AirAct Amendments is the same standard which was originally passed in1970, but successively weakened over the years.Japan adopted the 1970 U.S. auto emission standards in 1972, andmet all of them by 1978, even the technologically difficult to achieve ni-trogen oxide standard. In both the U.S. and Japan, the emission stan-dards were not technologically-based; that is, no specific technology wasmandated to meet the standards. Because no technology that wouldmeet the standards existed at the time of their enactment, companieswere required to develop new technology in order to meet them.The means chosen by Japanese car companies to meet the standards- including engine modification, fuel injection and exhaust gas recycling- also had the unexpected result of increasing fuel efficiency by thirtypercent from 1976 to 1980. Consequently, Japanese companies were inan excellent position to increase market share when consumers becameenergy conscious in the late 1970s and early 1980s. Thus, having beenrequired to make the technological improvements necessary to meetstringent environmental standards actually improved the competitive po-sition of the Japanese car industry rather than having had a negativeimpact.III. ADOPTION OF AUTO EMISSION STANDARDS IN THE UNITEDSTATES AND JAPANBy the early 1960s, air pollution in major cities such as Los Angelesand New York highlighted the need for regulation of car emissions.Therefore, in 1963, the federal government adopted the first auto emis-sion standards by regulating crankcase hydrocarbon emissions of carspurchased by the government.To qualify for sales to the U.S. Government, Japanese companiesmodified the export versions of their cars to meet the emission standards.Although the Japanese Government requested that the car manufactur-ers employ the same controls on models sold in Japan, the companiesrefused to do so on the grounds that in the absence of domestic regula-tion, the increased price of emission controls might place them at a com-petitive disadvantage.In 1967, the U.S. Public Health Service, the agency responsible forair quality prior to the creation of the Environmental Protection Agency("EPA"), announced that five foreign car companies had met the stan-dards to enable them to compete for sales to U.S. Government agenciesand that two of these were Japanese companies - Toyota and Nissan.This announcement created a public furor in Japan, as Japanese citizensdiscovered that auto companies were manufacturing less-polluting carsfor export than they were for the domestic market.In 1970, the United States passed the Clean Air Act, establishing theVol. 18:287 19922Canada-United States Law Journal, Vol. 18 [1992], Iss. , Art. 30https://scholarlycommons.law.case.edu/cuslj/vol18/iss/30Campbell-A UTO EMISSION STANDARDSfirst comprehensive scheme dealing with air quality, including stringentlimitations on car exhaust emissions. The Clean Air Act required aninety percent reduction in emissions (from unregulated levels) of hydro-carbons and carbon monoxide by 1975 and of nitrogen oxides by 1976.An important feature of these standards, particularly from the view oftechnological innovation and international competitiveness, was thatthey were not technologically-based like many other U.S. regulations.Essentially, lawmakers set the standards based on the pollution reduc-tions necessary to protect human health and the environment. No pollu-tion control technology to achieve the standards existed at the time oftheir enactment. The idea was that the standards would be "technology-forcing" by encouraging the development of new technology in order tomeet the requirements.During this same time period, air pollution had become so severe inmajor Japanese cities that people had to stop periodically at local oxygenstations. The number of cases of respiratory illness, especially in the To-kyo to Osaka corridor, soared. An increasingly powerful and vocal citi-zens movement began to press for both air pollution regulation andcompensation for health damage caused by pollution. In 1962, the Sootand Smoke Regulation Law was passed which provided for a study ofpotential emission limitations and controls on mobile source emissions.As with so many public policy issues, mobile source pollution waspropelled to the top of the Japanese political agenda at least partially dueto the direct effect of car emissions on a politician. Japanese politiciansfrequently campaign from an open vehicle. While campaigning for elec-tion in 1963, a congressman became very ill from exposure to pollutionfrom a truck driving in front of him. The congressman subsequentlycomplained bitterly about his experience to the press and in the Diet.The experience turned out to be a common problem for campaigningcongressmen; it was even alleged that several elderly congressmen haddied shortly after the election due to pollution exposure during theircampaigns.In July 1970, high levels of lead in the blood of people living nearmajor Japanese thoroughfares were reported, and this report, combinedwith the tremendous increase in other diseases caused by air pollution,created additional public outrage and concern. A public demand for aban on lead gasoline caused the government to require a fifty percentreduction in the lead content of gasoline in 1972, with a total phase-outover a five-year period.Also in 1972, the Japanese Environment Agency was created, andthe newly-formed Agency began to study the U.S. auto emission stan-dards. An advisory committee, consisting primarily of academic andmedical experts, was established to provide advice to the Agency on thetechnical feasibility and appropriateness of adopting auto emission stan-dards. After careful study, the Japanese Government decided to adoptthe same standards and deadlines as the United States, with some adjust-3Campbell and Madrid-Crost: The Competitive Effects of U.S. and Japenese Auto Emission StandaPublished by Case Western Reserve University School of Law Scholarly Commons, 1992CANADA-UNITED STATES LAW JOURNALments to account for differences in the certification procedures for proto-type automobiles, traffic and driving patterns.IV. IMPLEMENTATION OF THE EMISSION STANDARDSIn 1972, the United States and Japan had the same auto emissionstandards and deadlines. By February 1972, however, the U.S. Office ofScience and Technology had issued a report concerning the effect ofemission regulations on the cost of auto transport and advocating flexibleenforcement of the standards in order to minimize the cost of autoproduction.Meanwhile, during a 1972 meeting of the Air Management Sectionof the Organization for Economic Cooperation and Development("OECD") in Tokyo, the press reported that two Japanese car compa-nies, Mazda and Honda, had developed a car that could meet the 1975standards for hydrocarbons and carbon dioxide. The U.S. delegationwas shocked; they did not believe that the report was true and asked fordocumented verification. Mazda and Honda were small companies incomparison with Toyota and Nissan; for them, introducing a car whichmet the standards before the big car companies represented an opportu-nity to increase their market share.Despite the news of the Japanese companies' ability to meet thestandards, in April 1973, the United States postponed implementation ofthe 1975 standards until 1976. Key Japanese ministries with authorityfor enforcement of the emission standards, such as the Ministry of Inter-national Trade and Industry ("MITI"), carefully observed the situationin the United States. As might be expected, MITI is more industry-ori-eited than the Environment Agency and was looking for an opportunityto relax Japan's standards.Politically, however, it was not feasible at this time in Japan to delayimplementation of the 1975 hydrocarbon and carbon monoxide stan-dards due to intense public pressure on the government. Therefore, theJapanese Government decided to implement the 1975 standards for hy-drocarbons and carbon monoxide and study further the feasibility ofmeeting the 1976 standard for nitrogen oxide. The Japanese Govern-ment advised car companies to phase out production of models whichwould not be able to meet the 1975 standards.Japanese car companies were watching the U.S. implementation ofits auto emission standards, hoping that flexible enforcement in theUnited States would lead to the same action in Japan. Following theU.S. announcement that it would delay implementation of the 1975 stan-dards, the auto industry began to lobby heavily for changing the 1976deadline for the nitrogen oxide standard. To increase the likelihood ofachieving this result, the car companies announced publicly that it wouldbe technologically infeasible to meet the nitrogen oxide standard by 1976.While Japan's central government was basically amenable to theVol. 18:287 19924Canada-United States Law Journal, Vol. 18 [1992], Iss. , Art. 30https://scholarlycommons.law.case.edu/cuslj/vol18/iss/30Campbell-A UTO EMISSION STANDARDSidea of relaxing the nitrogen oxide standard, local governments were not.The municipal governments of seven major cities - including Tokyo,Osaka and Kawasaki - had been elected on environmental platforms ata time of tremendous pollution, and the members of these governmentswere not of the same political party as central government members.Therefore, when the central government announced that it was not tech-nically possible to meet the 1976 standard, the municipal governmentsformed their own council to study the situation. The municipal govern-ment council interviewed each auto company separately and determinedthat at least two of the companies were willing and able to meet the nitro-gen oxide standard - not in 1976, but in the near future.At the same time, it was revealed that the advisory committee whichhad been assisting the central government had allowed an industry repre-sentative to attend its meetings while denying the public access to infor-mation supporting the feasibility of meeting the nitrogen oxide standard.The central government's position was exposed as one based on politicalrather than technological concerns. A new committee was formed, and anew report was issued indicating that it was probably technically feasibleto meet the nitrogen oxide standard.Suddenly, in 1976, all of the Japanese auto manufacturers exceptSuzuki, which was experiencing problems due to its two cylinder engine,announced that they would be able to meet the nitrogen oxide standardwithin about a year. It was obvious that all of the companies had beendeveloping emission reduction technology and had been waiting to see ifthey would be required to use it. The Japanese Government reacted byrequiring all car companies to meet the nitrogen oxide standard by 1978,which they did.Because the Japanese emission standards were technology-based, themeans of achieving compliance varied among manufacturers and in-cluded engine modification, lean combustion, exhaust gas recycling andfuel injection. Each of these techniques also had the effect of making thecar more fuel efficient. While reduced fuel efficiency had been a strongargument against imposing a stringent nitrogen oxide standard, overallfuel efficiency of Japanese cars increased thirty percent from 1976 to1980.In the meantime, the United States proceeded slowly, meeting thecarbon monoxide standard in 1981 and the hydrocarbon standard in1988. The 1990 Clean Air Act Amendments included a tough "new"nitrogen oxide standard: ninety percent reduction from unregulatedlevels - the same standard that had been enacted in 1970.V. ENVIRONMENTAL REGULATION AND INTERNATIONAL TRADEIn November 1976, the OECD carried out a study on air emissionsand auto exhaust and concluded, among other things, that the Japaneseauto emission standards had not been enacted as a non-tariff trade bar-5Campbell and Madrid-Crost: The Competitive Effects of U.S. and Japenese Auto Emission StandaPublished by Case Western Reserve University School of Law Scholarly Commons, 1992CANADA-UNITED STATES LAW JOURNALrier, but were, in fact, necessary and reasonable to achieve the air qualitygoals of the Japanese Government. To avoid trade friction, however, theJapanese Government granted U.S. and European car manufacturers athree year grace period to meet the 1978 nitrogen oxide standard on carsbeing exported to Japan.In 1976, the issue of whether the failure to implement auto emissionstandards which were protective of human health and the environmentconstituted an impermissible subsidy under the provisions of the GeneralAgreement on Tariffs and Trade was not discussed.Without citing well-known statistics about the global market shareenjoyed by Japanese auto manufacturers, it is easy to conclude that Japa-nese industry was not disadvantaged by the imposition of stringent envi-ronmental regulations. In fact, the technological innovation required bythe emission standards also resulted in greater fuel efficiency and bettercombustion, giving Japanese companies a competitive advantage, partic-ularly against less fuel efficient American cars.VI. CONCLUSIONSFar from creating a disadvantage for the Japanese auto industry, theenforcement of stringent emission standards required companies to un-dertake technological innovation that in the long term resulted in a morecompetitive product. U.S. companies, on the other hand, in not beingrequired to meet the 1970 standards, may have lost a crucial chance tokeep pace with technological advances made by their Japanesecounterparts.The United States now has the opportunity to take a different ap-proach than it did in the case of auto emission standards. For example,under the Framework Convention on Climate Change signed by theUnited States and most other industrialized countries at the 1992 EarthSummit, nations pledged to find ways to reduce their emissions of so-called "greenhouse gases" which are thought to cause serious changes inthe Earth's climate. While the United States focuses on the costs of re-ducing carbon dioxide emissions generated by combustion of fossils, oneof the major greenhouse gases, countries such as Germany and Japan aresearching for ways to increase energy efficiency. Clearly, manufacturingprocesses using less energy will result in lower-priced, more competitiveproducts in the future.If the United States wants to compete in the global marketplace, itspolicymakers must begin to see environmental regulation not only fromthe perspective of short term costs, but also as a necessary element of atechnologically competitive industry.Vol. 18:287 19926Canada-United States Law Journal, Vol. 18 [1992], Iss. , Art. 30https://scholarlycommons.law.case.edu/cuslj/vol18/iss/30Campbell-AUTO EMISSION STANDARDS 293SELECTED BIBLIOGRAPHY1. Clean Air Act, codified as amended at 42 U.S.C. § 7401.2. ENVIRONMENTAL POLICY IN JAPAN (Shigeto Tsuru and HelmutWeidner eds., 1989).3. JAPANESE ENVIRONMENT AGENCY, QUALITY OF THE ENVIRON-MENT IN JAPAN 1992 (1992).4. Hajime Nishimura & Masayoshi Sadakata, Emission Control Technol-ogy, in How TO CONQUER AIR POLLUTION - A JAPANESE EXPERI-ENCE (Hajime Nishimura ed., 1989).5. JOHN QUARLES, HANDBOOK ON THE 1990 CLEAN AIR ACT AMEND-MENTS (1991).7Campbell and Madrid-Crost: The Competitive Effects of U.S. and Japenese Auto Emission StandaPublished by Case Western Reserve University School of Law Scholarly Commons, 19928Canada-United States Law Journal, Vol. 18 [1992], Iss. , Art. 30https://scholarlycommons.law.case.edu/cuslj/vol18/iss/30

The Competitive Effects of U.S. and Japenese Auto Emission Standards: Are Strong Environmental Regulations the Reason Japanese Cars Sell Themselves

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The Competitive Effects of U.S. and Japenese Auto Emission Standards: Are Strong Environmental Regulations the Reason Japanese Cars Sell Themselves

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