TBT’s Effect On China’s Automobile Exports To Developing World

As a highly comprehensive industry, automobile industry has played a leading role in its related upstream industries and downstream industries. Its importance in the process of the development of world economy is irreplaceable. Automobile industry is becoming the central pillar industry for countries producing automobiles. With the deepening and widening of globalization, the total value of automobile exports has reached more than620billion USD dollars(cars only, HS four digits heading:8703) before the financial crisis in2008. This great success has brought prosperity in related industry such as industries involved in parts and accessories of motor vehicles. According to the statistics issued by International Trade Center, total value of parts and accessories (HS four digits heading:8708) has surpassed340billion USD dollars in2011. Although the total value of automobile exports dropped dramatically due to the influence of financial crisis, from637billion dollars in2008to436billion dollars in2009, total number of automobile exports has recovered to its growth rate before the financial crisis. China is a new player in automobile industry considering the short history of this industry in the country. However, automobile export volume has been growing at an explosive rate since China’s accession to the WTO.After over fifteen years of tough negotiations, China succeeded in becoming a member of the World Trade Organization (WTO) in December2001. This event brings great success and benefits for China’s domestic industry. Total volume of exports of all products from China to the world has reached2billion dollars in2012from266billion dollars in2011. In terms of automobile exports, the value has grown over14times from4billion dollars in2001compared to58billion dollars in2013regardless of a big drop in2008. Now, fourteen years have passed and China’s transitional period admitted by WTO General Council will be due on11December2016. From then on, China will be treated as market economy and great changes in economic field are ongoing. For example, tariffs used to be an effective instrument to protect domestic industry while non-tariff measures (NTMs) had accompanied cross-community trade but were little noticed. Not any more. Through successive waves of liberalization, tariffs have steadily dropped over the years both in industrial and developing countries. However, as tariff rates went down, NTMs have grown in importance. Unlike tariffs, such measures may have a dual purpose:NTMs may be designed or administered in ways that intentionally restrict trade even if their declared purpose is to serve a public policy goal. For example, a technical product requirement may be introduced to prevent the importation and marketing of products considered unsafe for consumption, but it may also target at restricting the exports of certain products in domestic market. The use of NTMs to replace, at least in part, former levels of tariff protection is becoming increasingly popular in international trade. Although WTO members have expressed their ambition to eliminate non-tariff barriers to trade, little process has been achieved in recent years. The challenge of minimizing trade-impairing effect of NTMs is regarded as the next frontier in trade policy. This may not be an easy task since non-tariff barriers, especially technical barriers to trade (TBT), are often in the disguise of protecting citizens’health and preventing environmental pollution.TBT include technical regulations, products standards and conformity assessment procedures. The commodities frequently attacked by TBT in China are electrical and electronic equipment, cosmetics, pharmaceutical products, prepared foodstuff product, traditional medicines and health supplements products, medical device products, wood-based products, rubber-based products and automotive products. Although some TBT such as products standards are not mandatory, they will still weaken the competitiveness of Chinese exporters. For example, when Russia imposed a new technical regulations on imported automobiles in2009, China’s automobile exporters met the obstacle to recover after the financial crisis. Although exports of automobile to Russia did recover, the picture was not so pleasant when compared to other industries. Technical regulations and product standards unambiguously increase automobile manufacturers’ marginal production costs. However, some scholars argue that meeting such regulations and standards is relatively important from the perspective of producers since these requirements provide Chinese automobile manufacturers great impetus to renew their technology and make more efforts to upgrade the products they produce. This may be true if Chinese automobile industry has already stood firmly in global market. Considering that China is a new player in this field, the negative effect of TBT may be larger than the positive one.To measure the effect of TBT on China’s automobile exports, this paper uses Gravity Model of Trade to analyze data collected by International Trade Center (ITC), the World Bank(WB) and the International Monetary Fund(IMF) from2001to2013. The data include trade flow between China and Russia, GDP per capita in China and Russia, currency exchange rate of RMB. The result shows that the newly imposed technical regulations by Russia Federation has indeed impaired automobile exports from China to Russia. Since Russia is the largest trade partner of China in automobile industry and the situation there is not so pleasant, people would doubt whether China can overcome the obstacle and survive in global market in automobile exportation. This paper answers this question by introducing the empirical application of Porter’s Diamond Model. It seeks to determine the industry competitiveness of China’s automobile industry by comparing it with that of South Korea, a successful new player in automobile industry. The study finds that China’s automobile industry is at least as comparative as that of South Korea despite its disadvantage in lower literacy rate of employees and less investment in research and development,etc. Based on this analysis, the paper proposes several suggestions for Chinese government, non-governmental organizations and automobiles manufacturers to improve the competitiveness of automobile industry.The contribution of this paper to literature is threefold. First, it builds a simple model of linear regression to measure TBT’s effect on China’s automobile industry with existing data. Although the result is inevitably biased for its narrowly-distributed data and the situation in Russia does not actually reflect that of the whole developing world, it is effective to give a general analysis on the effect of TBT. Second, it applies Porter’s Diamond Model to compare competitiveness of China’s automobile industry with that of South Korea. The model answers the question of whether China’s automobile industry has a chance to survive, even to dominate, in the global market. Third, in terms of countermeasures to overcome TBT, the paper focuses on initiatives Chinese government can take and offers three suggestions based on previous analyses.The paper is structured as the follows. In Chapter One, after introducing the research background and significance, the paper gives an overview of the existing theoretical and empirical literature on TBT home and abroad, identifies shortcomings in the methodologies and data employed and explains how this paper intends to address these concerns. Chapter Two presents definition, WTO rules and theoretical basis of TBT and analyzes both negative and positive effects of TBT on international trade and automobile manufacturers’ performance. Chapter Three quantifies TBT’s effect on China’s automobile exports by studying the case of Russia. In this section, the Gravity Model of Trade is employed as an instrument to measure the effect of TBT. Based on the results of empirical testing in Chapter Three, Chapter Four analyzes the industry competitiveness of China’s automobile industry by comparing it to auto industry in South Korea to decide whether China’s auto makers have a chance to survive, or even to win, in global market. In Chapter Five, the paper discusses practicable countermeasures to overcome TBT implemented on China’s automobiles from the perspective of Chinese government, non-governmental organizations and automobile exporters respectively. Chapter Six is a conclusion of the paper and it also lists several shortcomings of this study to be improved in future study.