Firm Responses to Trade and Environment Regulation
Traditionally, environmental regulatory barriers have posed a specific set of threats which restrict the strategies of firms engaged in international business. The classic threat is from foreign environmental regulations that deny access to the large, lucrative export markets. Such regulatory barriers have been particularly formidable when they moved to ever higher levels, were backed by powerful coalitions of protectionist industries and environmental groups in the foreign market, and administered by a trade dispute system in large national governments over which outside firms from smaller countries had little control. In such situations, as the UHT case indicates, the time and expense of litigation and lobbying, even with the full support of one's home government, could be an enormous competitive disadvantage for a firm. The major alternative response, available primarily to those large firms with vast resources and long time horizons, was to produce at home to meet the stringent regulations in the large, Vogel-type ' California' export market ( Vogel 1995), calculating that these high and ever-rising regulations would keep one's competitors, foreign and domestic, at bay.
Today, however, firms face a much more complex situation. Environmental regulations are proliferating at the local, national, and international levels. They are expanding from product to production/processing and distribution/disposal phases, and intensifying conflict among industries in different sectors. At the same time, the advent of internationally integrated production systems is making such local and national regulatory borders increasingly costly, as firms build a larger base enabling them to compete on a fully global scale. This is true even as the rise of multinational production and international business alliances allows firms more readily to produce and exert influence within once closed foreign markets. Finally, to help manage these new intersections of opening markets and compounding environmental regulations, there has arisen a new array of trade liberalization agreements, led by NAFTA, with new rules for trade-environment integration and new institutions to ensure that the values of both environmental protectors and trade liberalizers are simultaneously enhanced.
The more complex regulatory and competitive environment, and the array of international institutions which govern it, presents firms with new obstacles and opportunities in their response to business challenges abroad. This chapter outlines the expanded array of corporate and political strategies which firms now have available in this complex institutional environment, and identifies how firms at different