power of the NAFTA institutions to enhance their global competitive position. This reluctance to regard governments as partners rather than antagonists, or to form Japanese-style or European-type alliances with governments, has impeded the ability of automobile firms to develop flagship relationships across five partner networks ( Rugman and D'Cruz 1996). The new era of global competition requires a more comprehensive response. Governmentally secured regulatory convergence, even as a codification of regimes pioneered by private sector processes, offers the certainty and sanctions that come with the full force of law. Inter-governmentally agreed regulations through the NAFTA institutions would provide firms with a stronger, region-wide home base from which to compete globally. And a NAFTA-based, governmentally backed coalition would strengthen the hand of North American firms in the looming multilateral debates to define the regulations for the world cars of the future.
This chapter examines how environmental policy and regulation, as shaped by the NAFTA regime of rules and institutions, is affecting automotive trade, investment, and production in North America and having broad economic implications for the North American automotive industry, including its consumers and other stakeholders. 1 This chapter argues that there are three broad forces affecting the environmental regulation and performance of the North American automotive industry in the NAFTA era. 2
The first is an intensification of the move towards a full-scale rationalization and integration of the industry on a regional rather than national basis, with a corresponding production incentive to have a uniform set of relevant environmental standards in all three countries and across all their subfederal jurisdictions. The second is a new wave of high-level regulatory harmonization as NAFTA's consciousness-raising, institutions, dispute settlement mechanisms, and incentives have prevented any regulatory 'race to the bottom' but instead inspired a 'push to the top', driven and guided largely by the anticipatory and voluntary efforts of industry and its stakeholders. The third is the rapid spread of this push to high-level harmonization from the assembly to the original equipment manufacture ( OEM) parts and then aftermarket sectors, and from manufacturing standards, to fuel standards, and then inspection, maintenance, and other operating standards.
In the first instance, NAFTA is leading to the full integration and rationalization of the North American auto industry on a regional rather than national basis, by absorbing the historically protected Mexican market into the long integrated US-Canada production system, and by drawing the latter ever more tightly together. As one leading analyst put it: 'It is now appropriate to talk of a North American auto market' ( Weintraub 1997: 41). 3 Although delayed by the 1995 peso crisis in Mexico and the paucity of new big three investment in Mexico in NAFTA's first four years, this process of full rationalization is clearly proceeding. With it, and the move to just-in-time inventory