How Do China's Importing Firms Respond to Non‐tariff Measures?

• Published date: 01 July 2021
• Author: Xiaodan Hu,Yunhua Tian,Yanping Zhou,Lu Feng
• Date: 01 July 2021
• DOI: http://doi.org/10.1111/cwe.12379

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 89–112, Vol. 29, No. 4, 2021 89

*Xiaodan Hu, Post-doctoral Researcher, Institute of Industrial Economics, Jinan University, China. Email:

huxiaodan2020@foxmail.com; Yunhua Tian (corresponding author), Associate Professor, School of Economics

and Trade, Guangdong University of Foreign Studies, China. Email: breeze.yunhua@gdufs.edu.cn; Yanping Zhou

(joint corresponding author), Postgraduate, School of Economics and Trade, Guangdong University of Foreign

Studies, China. Email: yanping_zhou@foxmail.com; Lu Feng (joint corresponding author), PhD, School of

International Trade and Economics, University of International Business and Economics, China. Email: fenglu_

uibe@hotmail.com. The authors acknowledge fi nancial support from the National Natural Science Foundation

of China (No. 71903041), the Humanity and Social Science Youth Foundation (No. 17YJC790142), Key Project

of Ministry of Education of China (No. 16JZD018), the Natural Science Foundation of Guangdong Province

(No. 2021A1515012018), and the National Social Science Foundation (Nos. 21AZD064 and 19BJL074). We

thank the editors and anonymous referees for providing insightful suggestions.

How Do China’s Importing Firms Respond to

Non-tariff Measures?

Xiaodan Hu, Yunhua Tian, Yanping Zhou, Lu Feng*

Abstract

After the formation of the World Trade Organization (WTO) in 1995, most countries

gradually reduced their import tariffs to a fairly low level. However, the reduced tariffs

could not be simply read as a reduction in trade barriers. Indeed, many suspect that

countries tend to use more non-tariff measures (NTMs), substituting them for tariff

barriers, to protect their domestic economies. This paper uses newly compiled and

detailed Chinese NTM data, together with highly disaggregated firm import data and

manufacturing fi rm operational data, to investigate the impact of China’s import-related

NTMs on firm imports. Th e main empirical results show that, as in the case of tariff

barriers, China’s trade policy NTMs mainly inhibit fi rms’ intermediate imports. In c ontrast,

China’s public policy NTMs signifi cantly improve the intensive and extensive margins of

fi rm’s intermediate imports and raise the prices and quality of imported inputs. The gr eater

the extent to which a fi rm engages in processing trade, the larger is the promoting effect of

public policy NTMs on the fi rm’s import margins for intermediate inputs, and the greater is

the restricting effect on the prices and the quality of the fi rm’s imported inputs.

Key words: extensive margin, intensive margin, intermediate inputs, non-tariff measures,

trade liberalization

JEL codes: F13, F14, F68

I. Introduction

Since the formation of World Trade Organization (WTO) in 1995, international trade

has become increasingly liberalized against the backdrop of the dramatic worldwide

Xiaodan Hu et al. / 89–112, Vol. 29, No. 4, 2021

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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reduction in tariff barriers. Some free trade agreements (FTAs) have achieved zero

tariffs (Su and Zang, 2020). Nonetheless, the reduced tariff level cannot be simply

read as a reduction in trade barriers. When tariffs and other traditional non-tariff

barriers have become progressively unavailable to governments, it is suggested that

certain less effectively regulated new non-tariff measures (NTMs),1 such as technical

barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures for public policy

management, have been employed widely, and this may distort trade even more than

tariff barriers.

Research o n NTMs mostly focuses on certain specific sorts of traditional non-

tariff barriers (NTBs) used for trade policy objectives to protect domestic producers

from import competition. These include anti-dumping duties, countervailing duties,

and safeguard measures (Park, 2009; Bown and Tovar, 2011; Wang et al., 2019), and

quantitative restrictions such as quotas and licenses (Khandelwal et al., 2013; Imbruno,

2016), all of which play the same role as tariff barriers. However, with growing concerns

over health, sa fety, environmental quality, the well-being of consumers, and other social

considerations, NTMs are less about shielding domestic producers and more about

achieving legitimate public policy objectives (WTO, 2012). Empirical studies show

that new sorts of NTMs prompted by non-economic public policy objectives exert two

sorts of trade effects: favorable trade effects and adverse trade effects. On the one hand,

NTMs for public policy objectives can act as a sort of “certifi cation” to foster trade by

correcting market failures caused by information asymmetries or imperfect competition,

thus helping to build consumer confi dence in the quality, safety, and other health-related

attributes of imported products and to reduce the fi rm’s information costs for seeking

high-quality imported products (Moenius, 2004; Bao and Qiu, 2010, 2012; Bao and

Chen, 2013; Crivelli and Gröschl, 2016). On the other hand, public policy NTMs can

raise product standards which impose high compliance costs for producers in exporting

countries, thereby increasing trade costs and suppressing trade (Hoekman and Nicita,

2011; Fontagné and Orefi ce, 2018; Grundke and Moser, 2019; Hu et al., 2019; Singh and

Chanda, 2021). Thus, the trade effects of NTMs prompted by public policy objectives

remain to be disentangled.

The widespread use of NTMs, enforced mainly by developing economies, has

made it an interesting “South–South” phenomenon (WTO, 2010). China, the largest

developing economy, has implemented a great number of NTMs, much more than the

1Non-tariff measures are defi ned as all trade-related measures other than tariffs. They used to be called non-

tariff barriers (NTBs) in most literature, referring to the hidden protectionist measures that impede trade.

However, new trade measures, like TBT and SPS, can be either trade facilitating or trade restrictive. Thus,

NTMs include NTBs.