The Impact Of Environmental Provisions In Preferential Trade Agreements On Firms’ Export Competitiveness

The inclusion of environmental provisions in preferential trade agreements(PTAs)has become a new global trend,which indicates that the focus of PTAs has begun to shift from promoting trade liberalization to global environmental co-governance.However,as developing countries face a tougher balance between economic growth and environmental protection,they are increasingly concerned that the environmental provisions in PTAs are diverting PTAs from their original purpose of promoting trade liberalization,and that developed countries are adopting these provisions to restrict export from developing countries in the name of environmental protection.As the largest developing country,China is proactively participating in global trade liberalization and environmental governance and is increasingly including different types of environmental provisions in its PTAs.A deep understanding of the impact of these provisions on trade is important to facilitate the negotiation of environmental provisions in PTAs and global environmental governance.At the same time,China’s trade is gradually transforming to the stage of high-quality development.How to further enhance the competitiveness and strength of trade while maintaining the stable growth of trade volume is a question that China needs to answer urgently to achieve the high-quality development of foreign trade.The 14 th Five-Year Plan for High-Quality Development of Foreign Trade puts forward the key tasks of optimizing the structure of trade in goods and building a green trade system.And the 14 th Five-Year Plan of China’s National Economic and Social Development outlines the requirement for China’s foreign trade to optimize the structure and quality of export products.Meanwhile,the high-quality development of China’s foreign trade should be based on the new development pattern of “dual circulation”,not only to improve the quality and level of international circulation but also to enhance the endogenous force of domestic circulation.Therefore,based on the trend of the environmental provisions in PTAs and the realistic requirements of the high-quality development of China’s foreign trade,this paper,rooted in the “dual circulation” development pattern,takes micro firms’ export competitiveness as the anchor point and constructs a framework for measuring export competitiveness from “structural optimization – quality upgrading – value creation capacity enhancement”.The export competitiveness is divided into three aspects – export cleanliness,export product quality,and the ratio of domestic value added in export – and the impact of the environmental provisions in PTAs on them are studied in this paper.The environmental provisions in PTAs are an extension of domestic environmental regulations to the international level.Therefore,this paper constructs the theoretical framework and research hypotheses on the impact of environmental provisions in PTAs on firms’ export competitiveness based on the fully developed “Pollution Heaven Hypothesis” and “Porter Hypothesis”.First,the direct regulatory comes from the “Pollution Heaven Hypothesis” and the technical cooperation among contracting parties based on the “Porter Hypothesis” will directly help promote the export of firms’ clean products and reduce the export of their polluting products,Thus,firms’ export structure will develop in a cleaner direction.Second,also based on the aforementioned two hypotheses,the environmental provisions in PTAs will encourage firms to improve their productivity and to import more intermediate inputs for production,thus helping to promote firms’ export product quality.Finally,starting from the productivity enhancement effect and the intermediate inputs import effect,the impact of environmental provisions in PTAs on firms’ ratios of domestic value added in export,i.e.,firms’ value creation capacity,is unclear and depends on the relative magnitude of these two effects.Based on the theoretical framework,this paper uses data from the Trade and Environment Database,the Chinese Customs Transaction-level Trade Statistics dataset,and the Chinese Annual Survey of Industrial Firms dataset between 2000 and 2014 to empirically test the impact of environmental provisions in PTAs on firms’ export competitiveness.The findings of the empirical tests in this paper indicate that environmental provisions in PTAs show different impacts on firms’ different dimensional export competitiveness.Specifically,first,environmental provisions in PTAs are not only beneficial to increase firms’ export share of clean products but also to reduce their export share of polluting products.The results of multiple robustness tests and the endogeneity test prove the robustness of this finding.Meanwhile,different types of environmental provisions have heterogeneous effects on firms’ export cleanliness,among which trade-liberal environmental provisions and trade-restrictive ones have greater effects.Additionally,pollution intensity and productivity could respectively discourage and encourage the promotion effect on export cleanliness of environmental provisions in PTAs.Secondly,environmental provisions in PTAs can help firms to upgrade the quality of export products.This effect is mainly because environmental provisions in PTAs improve firms’ productivity and increase their use of imported intermediate inputs.Moreover,the heterogeneity analysis shows that trade-liberal and trade-restricted environmental provisions have a greater effect on firms’ export product quality upgrading than other types of environmental provisions.From the perspective of product heterogeneity,environmental provisions in PTAs are more favorable to the upgrading of export product quality of consumption goods ad on-clean products.Additionally,environmental provisions in PTAs are more beneficial to upgrading of export product quality of firms in pollution-intensive industries,non-high-tech industries,and regions with more developed product markets.Finally,environmental provisions in PTAs are not conducive to enhancing firms’ value creation capacity in the export market.They have a significant negative effect on firms’ ratios of domestic value added in export.The mechanism tests show that they increase firms’ ratios of domestic value added in export by increasing firms’ productivity while decreasing firms’ ratios of domestic value added in export by increasing the substitution of imported intermediate inputs for domestic intermediate inputs.However,the latter effect is stronger than the former,making environmental provisions in PTAs harm firms’ ratios of domestic value added in export.The heterogeneity tests show that the effect of trade-liberal environmental provisions and trade-restrictive environmental provisions have a greater negative effect on firms’ ratios of domestic value added in export.Besides,the negative effect of environmental provisions in PTAs on firms’ ratios of domestic value added in export is smaller in regions with the higher development of domestic intermediate inputs markets,regions with the higher development of factor markets,industries with high technology,and upstream industries.This research has several marginal contributions.First,this study extends for the first time the impact of environmental provisions in PTAs to the perspective of export competitiveness.Only a few studies have focused on the impact of environmental provisions in PTAs on the trade volume of clean products or polluting products,while most studies have focused on the motivation,types,and diffusion of those provisions in the field of political science,law,or economics.This paper,however,explores the economic effect of environmental provisions in PTAs from three perspectives,i.e.,structure optimization,quality upgrading and,value creation capacity enhancement,in light of the reality of high-quality development of China’s trade.Secondly,by measuring the firms’ exposure to environmental provisions in PTAs,this paper brings the economic effect of environmental provisions in PTAs to the micro-firm level,which realizes the extension of the effect of environmental provisions in PTAs from the macro level to the micro level.Thirdly,this paper demonstrates that the “Pollution Heaven Hypothesis” and the “Porter Hypothesis” still exist even when it comes into terms with international environmental regulations.Fourth,the findings of this paper provide rich policy references for China’s participation in global environmental governance and high-quality development of trade.This paper suggests that environmental provisions in PTAs are conducive to the green transformation of China’s export structure and the upgrading of Chinses export product quality,thus enhancing firms’ inner strength to participate in international circulation.However,it also shows that environmental provisions in PTAs have a negative impact on firms’ ratios of domestic value added in the export because they do not deeply participate in domestic circulation and thus use more imported intermediate inputs under the regulation of environmental provisions in PTAs.Based on that,this paper proposes policy recommendations for China’s participation in international environmental governance and high-quality development of trade based on the main findings.