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Independent Equipment Dealers Association v. Environmental Protection Agency

June 25, 2004


On Petition for Review of an Order of the Environmental Protection Agency

Before: Rogers, Garland, and Roberts, Circuit Judges.

The opinion of the court was delivered by: Roberts, Circuit Judge

Argued February 10, 2004

Petitioner Independent Equipment Dealers Association (IEDA) is a trade association of independent dealers of heavy construction and industrial equipment, such as cranes, large forklifts, and generators. IEDA dealers are "independent" in the sense that they are not affiliated with any manufacturer. In December 2002, IEDA wrote to EPA seeking EPA's concurrence in its interpretation of emissions regulations pertaining to "nonroad engines" -- engines used in such heavy construction and industrial equipment. See generally 40 C.F.R. pt. 89. Four weeks later, EPA replied that it did not concur in IEDA's proffered interpretation. IEDA then filed this petition for review claiming that EPA, by its letter, had substantively amended its regulations concerning nonroad engines, and in so doing had failed to comply with the notice-and-comment requirements of Section 307(d) of the Clean Air Act, 42 U.S.C. § 7607(d)(3). IEDA alternatively contends that EPA's letter violated the Clean Air Act's prohibition on agency action that is arbitrary or capricious. See id. § 7607(d)(9)(A). We conclude that we lack jurisdiction and accordingly dismiss the petition for review.


Since 1996, EPA has regulated nonroad engines by requiring their manufacturers to obtain a "certificate of conformity" indicating compliance with EPA emissions standards before selling such engines or importing them into the United States. 40 C.F.R. §§ 89.105, 89.1003(a)(1); see also 42 U.S.C. § 7547(a) (authorizing regulation of nonroad engines); id. § 7522(a)(1) (prohibiting the sale, distribution, or importation of any uncertified new motor vehicle engine). Manufacturers are not required to obtain certificates of conformity for each individual engine or engine model, but rather for each "engine family." 40 C.F.R. § 89.105. EPA defines an engine family as a group of engines "expected to have similar emission characteristics throughout their useful life periods" -- a categorization based on the design and emissions characteristics of the engines. Id. § 89.116. The application for the certificate of conformity must include "[a]n unconditional statement certifying that all engines in the engine family comply with all requirements of this part [40 C.F.R. pt. 89] and the Clean Air Act." Id. § 89.115(d)(10). Those requirements include not only the emissions specifications, but also recall liability, see id. § 89.701 et seq., emissions defect reporting requirements, see id. § 89.801 et seq., and warranty obligations, see id. § 89.1007. Manufacturers are also subject to "selective enforcement auditing" -- emissions testing at the assembly line or, for engines manufactured abroad, at the point of importation. See id. § 89.503.

In furtherance of this regulatory regime, EPA also requires manufacturers to affix to each new engine an "emission control information label" that identifies the engine and states that it conforms to all EPA emissions standards and regulations. Id. § 89.110, (b)(10); see also id. § 89.1003(a)(4)(ii) (prohibiting sale or delivery of engine without emission control label affixed). On a practical level, this engine label demonstrates to dealers, purchasers, and enforcement inspectors that the engine is covered by an EPA certificate of conformity. Unlabeled engines are presumed to be uncertified. See OFFICE OF REGULATORY ENFORCEMENT, U.S. ENVTL. PROT. AGENCY, ENFORCEMENT ALERT: EPA STEPS UP ENFORCEMENT OF DIESEL, GASOLINE NONROAD ENGINE IMPORTS (Vol. 3, No. 2, Feb. 2000) (Enforcement Alert).

Many nonroad engines are manufactured outside the United States. Engines covered by a certificate of conformity may be imported into the United States subject only to ordinary customs regulations. Engines not covered by a manufacturer's certificate of conformity may only be imported if they comply with EPA's Independent Commercial Importers (ICI) program. 40 C.F.R. § 89.601 et seq. The chief burden associated with the ICI program is that after the importer has obtained a certificate of conformity for the engine family, the importer still must test one of every three imported engines for compliance with Part 89 emissions regulations. According to EPA, each test costs between $15,000 and $30,000, depending on the engine. EPA Br. 9. Additionally, since it is the importer, not the manufacturer, who obtains a certificate of conformity for the engines, all other Part 89 requirements -- labeling, recall and warranty, etc. --run to the importer rather than the manufacturer. See 40 C.F.R. § 89.610. The ICI importer thus steps into the shoes of the manufacturer, assuming all the obligations that would ordinarily fall upon the manufacturer.

The market for nonroad engines in the United States is segmented between original engine manufacturers (OEMs), who sell the equipment they manufacture through networks of authorized dealers, and independent equipment dealers, who are not affiliated with an OEM. Independent dealers make their way in the market by re-selling equipment, frequently at lower prices than the OEMs. The collapse of the Asia-Pacific Rim economy in the late 1990s offered a unique opportunity to enterprising independent equipment dealers. In the deeply distressed Asian construction market, equipment distributors found themselves with bloated inventories and few prospects of selling that equipment locally. Sensing an arbitrage opportunity, some U.S. independent dealers bought equipment at depressed prices in Asia, and then imported the equipment into the United States. Of course, the Asian equipment could be legally imported only if it were covered by a manufacturer's certificate of conformity or had been taken through the costly and time-consuming ICI process. Few independent dealers availed themselves of the ICI program; the lack of significant EPA enforcement of Part 89 regulations made importation of uncertified equipment a much more lucrative path.

The importation of low-priced Asian equipment -- EPA-certified and otherwise -- by independent dealers into the United States market had the predictable effect of undermining the pricing power of the OEMs in the United States. OEMs have a difficult time selling a machine for $50,000 when an independent dealer is selling the identical machine for $35,000, having purchased it in Korea for $20,000.

The OEMs appealed to EPA for increased enforcement of Part 89 regulatory requirements. In November 1998, EPA and the Associated Equipment Distributors, a trade association of authorized dealers, hosted a workshop to explain the Part 89 requirements as they pertained to imported engines. At the workshop, EPA vowed to enforce the regulations, and the Customs Service explained that it would impound any engine lacking an EPA emissions control information label. See Christian A. Klein, GRAY MARKET CRACKDOWN: EPA & CUSTOMS LAY DOWN THE LAW, CONSTR. EQUIP. DISTRIBUTION, Jan. 1999.

EPA followed up in February 2000 with an Enforcement Alert announcing its intention to increase enforcement of certificate of conformity and emission control information label requirements with regard to imported nonroad engines. See Enforcement Alert. In that document, EPA emphasized that all engines imported into the U.S. must be covered by a certificate of conformity and must bear an EPA-compliant emissions control information label. Id. at 1. In a "Fact and Fiction" segment, EPA also cautioned that many engines obtained overseas were not eligible for importation:

Fiction: An uncertified engine having similar or even identical emission characteristics as a certified engine should be able to be imported.

Fact: Manufacturers may produce engines that are identical to U.S. certified versions but the engines are not intended for the U.S. market. These engines are not certified and may not be imported unless they are produced under ...

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