The Effects of Product Standards on Trade: Quasi‐Experimental Evidence from China

• Published date: 01 June 2022
• Author: Xuejun Wang,Xiaoqi Zhang,Dan Meng,Harry M. Kaiser
• Date: 01 June 2022
• DOI: http://doi.org/10.1111/1467-8462.12458

The Australian Economic Review, vol. 55, no. 2, pp. 232–249 DOI: 10.1111/1467-8462.12458

The Effects of Product Standards on Trade: Quasi‐Experimental

Evidence from China

Xuejun Wang, Xiaoqi Zhang, Dan Meng and Harry M. Kaiser*

Abstract

Using China Compulsory Certification (CCC) as

a case study, we investigate how compulsory

certification schemes impact China's imports. A

difference‐in‐difference approach is used with

China customs data to measure the impact of

CCC on imports. Our findings show that the

CCC regulation increases China's market access

for products requiring certification. The results

show that the import‐promoting effects of CCC

regulation are due to an increase in the intensive

margin effect rather than to an increase in the

extensive margin effect. We also find that product

quality plays no significant mediation role in the

effect of CCC regulation on China's imports.

1. Introduction

With the reduction in the use of tariffs and the

increase in reliance on nontariff measures by

countries, there is renewed interest by econ-

omists in the wide‐ranging effects of non‐

tariff measures on trade (Beghin et al. 2015;

Murina and Nicita 2017; Santeramo and

Lamonaca 2019). A prominently used non‐

tariff measure is product standards, which

may impact trade. In theory, product standards

can act either as a barrier or a catalyst to trade

(Disdier, Fontagné and Mimouni 2008;

Beghin et al. 2015). For instance, product

standards can address information asymmetry

and market failures, thus reducing transaction

costs, upgrading quality and improving

market access (Xiong and Beghin 2014;

Manova and Yu 2017). On the other hand,

product standards can increase compliance

costs for export firms, which reduces trade

and/or directly prevents products from en-

tering the market (Herzfeld, Drescher and

Grebitus 2011; Fernandes, Ferro and

Wilson 2019).

Theoretical analyses pinpoint the me-

chanism through which product standards

affect international trade, but such theory

does not tell us whether standards ultimately

promote or dampen trade. Answering this

question requires an empirical approach that

allows conclusions about causal effects. In

recent decades, many empirical studies have

been conducted that investigate the trade

effects of product standards (Melo et al. 2014;

Fontagné et al. 2015; Ehrich et al. 2018). Note

*Wang, Zhang and Meng: Nanjing Agricultural

University, 1 Weigang, Nanjing, China; Kaiser: Cornell

University, Ithaca, USA. Corresponding author: Wang,

email<wangxj@njau.edu.cn>. The authors are very

grateful to the editor Ross Williams and the anonymous

referee for insightful comments. Xuejun Wang gratefully

acknowledges financial support from the National Social

Science Fund of China (20ZDA102), the National

Science Foundation of China (71934005) and the

Priority Academic Program Development of Jiangsu

Higher Education Institutions (PAPD).

© 2022 The University of Melbourne, Melbourne Institute: Applied Economic & Social Research,

Faculty of Business and Economics

Published by John Wiley & Sons Australia, Ltd

that the measurement of standards has always

been a key technical issue in this research.

Most studies count the number of standards

relevant to a certain industrial subsector or a

certain category of traded goods as a proxy for

regulatory intensity level (Mangelsdorf,

Portugal‐Perez and Wilson 2012; Olper,

Curzi and Pacca 2014). This measure suffers

from what is often called the ‘mixed bag’

problem. Specifically, this approach gives

equal weight to all existing standards and

cannot distinguish the effectiveness and

marginal contribution of different standards

(Swann, Temple and Shurmer 1996). In

econometric terms, this means that the count

variable is not a very accurate measure of the

underlying concept of standards‐richness that

we want to measure.

1

In our research, we

apply a difference‐in‐differences (DID) ap-

proach to explore the relationship between

product standards and trade using China

Compulsory Certification (CCC regulation)

as a quasi‐experiment. Our research method

enables us to avoid the strong assumption that

all standards are equivalent. The WTO

accession in 2001 prompted China to imple-

ment the CCC regulation, which is a con-

formity assessment system required for the

importation and sale of goods in China. The

compulsory certification implemented in

China since 2002 was gradually applied to

different products in different years. Products

requiring certification were gradually added to

the catalogue with the year. The institutional

design of the CCC regulation, that is, the

catalogue, contains different products, but the

products need to comply with unified stan-

dards, which enables us to evaluate the net

effect of the standards on trade by estimating

the differences before and after the imple-

mentation of regulatory standards.

Furthermore, the case of China offers an

ideal context in which to investigate how

product standards issued by a developing

country affected trade, which is different

from most studies that focus on product

standards set by developed countries. Most

studies focus on investigating how regulatory

standards set by developed countries affect

exports in developing countries (e.g., Murina

and Nicita 2017; Curzi et al. 2020). This is

because product standards are usually issued

by high‐income countries and such standards

are often regarded as some kind of trade

barrier by less developed nations (Hu and

Lin 2016). Although it is generally believed

that countries of different income levels have

differences in implicit quality and safety

regulations, there is little empirical evidence

on the trade effects of regulatory standards

imposed by developing countries. China is an

ideal case study for investigating this issue.

Using China customs data for the 2002–2013

period, we estimate the impact of CCC regulation

on China's imports, considering several different

trade margins of adjustment. We first study how

China's imports react to the introduction of CCC

regulation at the product level, and we then give

particular emphasis to the underlying mechanism

by investigating the effect of CCC regulation on

both the intensive and extensive margin effect.

More specifically, we combine customs data with

a dataset extracted from the Catalogue of

Products Subject to China Compulsory

Certification issued by the Certification and

Accreditation Administration of the People's

Republic of China (CNCA

2

) at the HS eight‐

digit product level, which is the most disaggre-

gated level at which the two datasets are

comparable. We use HS eight‐digit products

requiring certification as the treatment group and

all other HS eight‐digit products that do not

require certification within the same HS six‐digit

category as the control group. The identification

relies on a comparison of outcome variables for

the treatment group with those for the control

group both before and after implementation of

the CCC regulation. Our key findings show that

the CCC regulation increases China's market

access for products requiring certification at the

product level. We also find that the imposition of

CCC regulation positively affects the intensive

margin of trade. By way of contrast, the effect on

the extensive margin is negative.

We further test whether the import‐

promoting effect of the CCC regulation is

largely due to quality improvements in

imported products. Several studies have

verified how standards may lead to trade

expansion by raising the quality of exported

233Wang, Zhang, Meng and Kaiser: Effects of Product Standards on Trade

© 2022 The University of Melbourne, Melbourne Institute: Applied Economic & Social Research,

Faculty of Business and Economics