ENVIRONMENTAL-REGULATION AND INTERNATIONAL COMPETITIVENESS

Environmental standards in the United States are more stringent and impose greater costs on industry than standards in many other countries. Widespread concern about resulting harm to the international competitiveness of U.S. business has spurred some to propose that the United States lower its standards, and others to insist that the United States impose countervailing duties on the imports of nations that do not adopt U.S. standards. Professor Stewart rejects these proposals. He finds that the available empirical studies do not prove that these competitiveness effects are large enough to merit such drastic steps. Moreover, U.S. standards are not more stringent than those of Germany or Japan. At the same time, some differences in environmental standards between developing countries and developed nations are entirely appropriate. U.S. firms are nonetheless especially disadvantaged by the rigid, piecemeal, legalistic character of U.S. environmental regulation and the open-ended sweep of U.S. environmental liabilities. Because of limitations in data and scope, the available empirical studies do not fully reflect the extent of this disadvantage. The appropriate response is to develop innovative, flexible regulatory tools-such as market-based incentives and environmental contracting-in order to achieve environmental protection more effectively and efficiently. In addition, the United States should support steps toward international harmonization of standards to deal with regional or global environmental externalities.