Standards And International Trade: Theoretical And Empirical Evidence From China

Standards are the corner stones of international trade and the technical languages for business communications among countries. With the accelerated trend of trade liberalization and economic globalization, the impact of standards on international trade is highlighted. Currently, studies concerning trade effects of standards are becoming one of the frontiers for trade policy research carried by international organizations like WTO, World Bank, etc.Since1990s, developed countries represented by Germany, United Kingdom and United States have already made rich attainments in theoretical and empirical studies. These findings play an important role in developing national standardization system, setting trade policies and promoting foreign trade. Due to lack of research data, studies on trade effects of national standards in developing countries have seriously lagged behind compared with developed countries. Almost all the researches are about national standards of developed countries, and those samples involved developing countries only investigate the role of national standards of developed countries on developing countries’ trade performance. Researches concerning national standards of developing countries on their international trade performance are rather limited. Studies on the role of Chinese standards for foreign trade just begin in recent years.Compared with existed researches, studies on Chinese standards’ trade effects have not made systematic achievements as far as research methods and clear directions are concerned. Although much attention has been paid on Chinese standards, researches in this area are rather limited, especially lack robust empirical evidence. Under this background, the paper tries to investigate Chinese standards’ trade effects from a relatively comprehensive and systematic viewpoint. The paper combines update theories with China’s reality so to promote theoretical research extension and mainly focuses on providing empirical evidence. Main parts and findings are summarized as follows.Literature reviews on trade effects of standards. The paper reviewed analytical and empirical literature on the role of standards on international trade. There are three clues. First, the paper reviews mechanism that standards may influence international trade. Second, the paper reviews empirical findings in this field. Third, the paper reviews studies concerning standards competition and standardization strategy concerning network industry. Literature review is to compare the differences between research objects and conclusions, and meanwhile summarize inherences and innovations in this research field.Study in macro level. First, the paper uses ECM model to investigate effects of voluntary national standards and international standards on China’s import and export. Results show that national standards and international standards both have positive effects on exports and imports. Setting activities and implementation of national standards improve the development of China’s foreign trade, while adopting international standards plays a more important role in this process. Second, employing cointegration test, Granger casualty test and Ridge regression, we examine the relationship between voluntary standards and China’s export growth. The empirical results show that stock of standards Granger causes the export growth. Ridge regression further confirms standards have important and time-effective impact on export. Meanwhile, since China’s accession into WTO in2001, role of standards on China’s export growth has experienced obvious structural change. Third, we use ICS classified panel data and focus on role of mandatory national standards, voluntary national standards, mandatory international standards as well as voluntary international standards for China’s foreign trade with the rest of the world and its bilateral trade flows with US. Results show that country-specific national standards negatively impact China’s foreign trade while international standards adopted by China, especially voluntary international standards, promote the development of China’s imports and exports as well as trade surplus between China and US. Mandatory national standards positively promote China’s export to US, but negatively impact imports.Study in meso level. We put above research further into industrial level, focusing on trade effects concerning different types of standards in various industrial sectors and the role of various kinds of standards for specific industry’s export. Main parts include:First, the paper empirically investigates impact of different types of standards on China’s foreign trade in each ICS classified industrial sectors. Results show that product standards, basis standards, method standards, management standards, safety standards, health standards as well as environmental protection standards all promote growth of China’s trade volume. Besides, imbalance exists in China’s standards system:sectors with heavy standards stock have relatively low share of international standards; share of technical standards is much higher than the share of management standards; share of product standards, basis standards and method standards is much higher than the share of safety standards, health standards and environmental protection standards. Second, the paper uses gravity model and panel data to empirically investigate the trade effects of technical standards in the field of electronics products export. The results indicate both national standards and international standards have significant and robust impact on China’s export of electronics products, and this impact varies according to implementation methods of standards as well as categories of electronics products. Conformity with international standards benefits China’s export of electronics to the world.Study in micro level. First, under the assumptions of network externalities and conversion technology, the paper builds a model to analyze the formation of trade policies involving compatibility standard as well as the impact of conversion technology on consumers’utility, firms’profits and social surplus in specific industry. The results show that if only foreign firms have to afford the cost of compatibility enhancing, host government has the incentive to impose excessively stringent compatibility standards. Conversion technology may play an important role in reducing the tension between competing firms, but the supply of conversion technology depends on the negotiations between domestic and foreign firms under the protection of IPR. Second, based on the heterogeneous firm trade model and using micro data concerning China’s electronics exporting firms, the paper examines impact of harmonized standards, i.e. standards identical to international standards on heterogeneous firms’export market decisions. Results show that harmonized standards have a statistically significant and robust positive influence on China’s electronics export. The trade-promoting effects are embodied with both extensive margin and intensive margin, while impact on the former is stronger than the latter. With the ratio of harmonized standards is increasing, more and more firms which originally only export to developing markets began to enter developed countries, especially those firms with higher productivity efficiency; meanwhile, export volume of firms which originally supply both developed and developing countries and areas as well as those continuously export to existed trade markets is also increasing.Case analysis. The paper compares the standardization strategy of China’s WAPI standard and South Korea’s Binary CDMA standard while mainly focusing on the role and efficiency of market mechanism and non-market mechanism in international standardization. International standardization strategies of latecomers’ have also been summarized. Results show that successfully improving Chinese standards to become international standards need policy support from government on the basis of considering firm decisions and consumers’ requirement so as to realize optimal combination of market and non-market mechanisms.To sum up, the paper mainly applies classic trade theory, economics of standards, network industrial theory, firm heterogeneity theory as well as development economics theory to conduct the research. We provide a relatively comprehensive theoretical and empirical analysis on trade effects of Chinese standards following the sequence of macro level (China’s foreign trade and Sino-US bilateral trade)-meso level(industrial level)-micro level (firms’ international markets decisions), and at the same time combing case studies to summarize latecomer strategy for China in international standardization process. Main findings include three aspects:First, standards play an important role in China’s foreign trade development. Second, trade effects of standards vary with standards’ types and show important industrial characteristics. Third, standards may influence micro firms’ international markets decisions, and trade effects may be explained through their impact on trade margins. Combined with case analysis, in the long term China should enhance coordination and coorporation with international standardization organizations and positively participate in preparing and setting process for international standards so as to promote Chinese standards to become international standards on the basis of completely considering technical types, capability level as well market demand.Due to the difficulties in developing theoretical model and attaining empirical data, the paper still need further research and development.