Introduction
International trade and globalization
International trade involves the exchange of goods and services across national borders and has become increasingly vital since the 1970s The growth of world exports has outpaced both global production and total economic output, highlighting the significance of international trade in the global economy A detailed analysis of the growth rates of world exports, production, and GDP from 1950 to 2005 illustrates this trend.
1 (WTO, 2006) International trade has been a major driver of global growth and prosperity over the last fifty years
Figure 1: Comparison of growth of world exports, world production and world GDP Source: Author’s calculations on the basis of WTO (2006) data (see Appendix A)
Before the 1970s, a clear divide existed between developed and developing countries, characterized by the flow of raw materials to the north and finished goods to the south This disparity was largely due to varying levels of development However, from the 1970s onward, many developing countries, particularly in Latin America (like Mexico) and Southeast Asia (such as Malaysia and Thailand), experienced significant industrial growth, altering this trade dynamic.
Industrial processes have shifted from developed countries to regions like Indonesia and East Asia, including China, South Korea, and Taiwan, due to lower production costs and cheaper labor As a result, global trade now features substantial merchandise flows from developing to developed nations.
Figure 2: Changes in global trade flows
Since 1995, global trade has experienced significant growth, particularly driven by rapid industrialization in developing countries like China, which surpassed the US to become the world's second-largest exporter This trend is mirrored by increasing exports from other developing nations such as Brazil and India, enhancing their influence in global trade By 2006, trade from developing countries reached a historic peak, and projections indicate that their share in world trade could rise to approximately 45 percent by 2030.
The rapid expansion of international trade has significantly driven and been influenced by globalization since the mid-1980s, with developing countries poised to play a crucial role in increasing average incomes over the next 25 years The global economy is projected to grow from $35 trillion in 2005 to $72 trillion by 2030; however, this growth could lead to heightened income inequality and environmental challenges if not managed properly, according to the World Bank To address these issues, stronger global institutions and enhanced development assistance are essential Additionally, reducing trade barriers is crucial for creating opportunities for impoverished nations and individuals, making the revitalization of the Doha round of trade negotiations a pressing priority.
Benefits of international free trade
Free trade, as defined by Irwin (1996), refers to the absence of artificial barriers that hinder the exchange of goods between nations, ensuring that domestic prices align with those established by the global market.
Free trade is widely supported by economists due to its significant benefits, as established by economic theories from Adam Smith and David Ricardo Smith, the founder of modern economics, argued in 1776 that free markets and trade are essential for economic growth, enabling countries to leverage their comparative advantages Ricardo further developed this concept in 1817, highlighting that nations prosper by focusing on their strengths and trading for goods that other countries produce more efficiently This specialization leads to mutual benefits and overall prosperity for all nations involved.
Neoclassical economic theory posits that trade can mitigate the disadvantages faced by countries with limited natural resources or those in earlier stages of development, thereby distributing developmental opportunities globally While the relationship between open trade and economic growth remains complex, numerous empirical studies indicate that free international trade fosters economic growth Research by Edwards (1992) highlights a catch-up effect, suggesting that nations with lower initial income levels tend to experience faster growth Countries embracing open trade policies are better positioned to adopt new technologies from around the world, promoting economic dynamism as entrepreneurs leverage access to global markets Trade liberalization is identified as a crucial strategy for economies to harness their comparative advantages and enhance economic efficiency.
Trade enhances economies of scale, allowing countries to maximize efficiency Open markets and international trade foster economic flexibility and intensify competitive pressures, compelling firms to minimize waste, reduce prices, improve quality, and elevate productivity Additionally, trade accelerates technological advancements and significantly boosts productivity levels.
Krugman (1987) highlighted that for 170 years, the understanding that international trade benefits nations has been fundamental in economics Economic theory supports the idea that free trade offers mutual advantages for all participants, suggesting that complete removal of artificial trade barriers would allow countries to maximize their resource potential Despite this theoretical framework, trade barriers remain prevalent and are often upheld for various policy reasons (Barrass & Madhavan, 1996).
Reasons for trade barriers
While international free trade offers numerous advantages, it also presents significant risks for countries, particularly in terms of heightened competition in global markets This competition can lead to the downfall of less competitive national enterprises and entire industries, which is why trade liberalization often faces opposition, even in wealthier nations Consequently, governments in developing countries frequently advocate for temporary protection of their national industries to help them grow stronger and more resilient against foreign competition To safeguard domestic producers, these governments may implement import quotas or, more commonly, impose tariffs on foreign goods to increase their prices and make them less appealing to consumers.
Trade barriers refer to any restrictions on the free flow of trade, which can include tariff barriers—customs duties imposed by countries under GATT Article II—or non-tariff barriers (NTBs) These barriers disrupt the balance of supply and demand, complicating international trade and adversely affecting exporters Additionally, they harm importers and consumers by limiting competitive sourcing, often leading to increased prices.
Trade barriers have existed since the inception of trade, primarily manifesting as tariffs designed to generate revenue for countries These tariffs are crucial for many nations' economies, serving as a significant income source Additionally, countries implement tariffs, quotas, and non-tariff barriers (NTBs) like stringent regulations to shield domestic industries from foreign competition Furthermore, trade barriers can function as instruments of foreign policy, with varying tariff levels used to incentivize or penalize other nations in alignment with political agendas This dynamic underpins the framework of free trade agreements, embargoes, boycotts, and sanctions, making trade barriers a sensitive and contentious topic.
Barrass and Madhavan (1996) suggest that implementing trade barriers can be justified if they provide long-term benefits that outweigh the short-term costs associated with losing the advantages of free trade There are several situations where trade barriers can prove to be beneficial.
Exogenous shocks can impose sudden changes on an economy, straining its ability to adapt In such situations, trade barriers can help mitigate these effects, providing essential "breathing space" for the economy to adjust effectively.
Countries can implement policies to intentionally restructure their economic activities, enabling currently uncompetitive sectors to gain competitiveness in the global market Additionally, it is essential to safeguard industries from potential disruptions caused by dumping practices.
Free trade arguments can sometimes conflict with national policy goals, as countries may prioritize their relative advantages In such cases, nations might attempt to undermine their competitors by restricting their access to markets.
Strategic considerations can render free trade undesirable for political reasons, especially when it comes to minimizing dependence on foreign sources for essential goods during times of conflict.
In conclusion, while trade barriers may offer short-term benefits in certain situations, economists advocate for protectionist policies primarily as temporary solutions employed by developed nations Over time, these measures can be detrimental to the economy, as they enable domestic producers to maintain inefficiencies, potentially resulting in economic stagnation Therefore, a gradual approach to trade liberalization is likely to be more advantageous in the long run than an abrupt elimination of trade barriers.
Creation of free trade mechanisms
Efforts to strengthen limitations on national governments' abilities to implement protectionist policies are driving diverse trade developments This includes bilateral trade between the US and Canada, regional trade within the EU, which was established as the EEC in 1957, and multilateral trade agreements under GATT/WTO.
Following World War II, several international institutions, including the IMF and World Bank, were established to promote free trade over protectionism, with the Bretton Woods conference in July 1944 laying the groundwork for global economic cooperation The General Agreement on Tariffs and Trade (GATT), created in 1948, aimed to reduce tariffs and non-tariff barriers (NTBs) while providing a framework for resolving trade disputes In 1995, the World Trade Organization (WTO) succeeded GATT, continuing the mission to lower tariffs and NTBs to enhance international trade.
Over the past two decades, nearly every country involved in GATT or the WTO has formed regional trade arrangements with neighboring nations, aiming to enhance trade and prosperity by reducing export barriers These agreements vary in structure and negotiation topics but share a common goal of fostering economic collaboration Recently, regional trade agreements have surged, with free trade arrangements established in regions such as North America (NAFTA), Europe (EU), Southeast Asia (ASEAN), and various parts of South America and Africa, promoting increased trade among member countries.
Bilateral trade agreements can transform countries into larger trade entities, potentially reducing global borders Rather than creating exclusive trade relations, these agreements may serve as a pathway to global liberalization by promoting "deep integration." This involves extensive market access for goods and services, along with comprehensive agreements on trade-related matters, including investment, competition, government procurement, trade facilitation, technical barriers to trade (TBT), sanitary and phytosanitary standards (SPS), and intellectual property protection (Maes, 2007).
Dominance of the NTBs in international trade
Until the mid-1960s, trade flows were primarily influenced by tariffs, which favored specific host countries (Baldwin, 1970) However, the establishment of GATT and WTO led to a significant reduction in tariff levels, as noted by BBC News (2007) Consequently, non-tariff barriers (NTBs) began to play a more significant role in distorting global trade dynamics.
•1949 — Second GATT round of trade talks held at Annecy, France, where countries exchanged some 5,000 tariff concessions
•1950 — Third GATT round held in Torquay, England, where countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%
•1955-56 — The next trade round resulted in $2.5bn in tariff reductions
•1960-62 — Fifth GATT round yielded tariff concessions worth $4.9bn of world trade and involved negotiations related to the creation of the EEC
•1964-67 — The Kennedy Round achieved tariff cuts worth $40bn of world trade
•1973-79 — The Tokyo Round achieved tariff reductions worth more than
Between 1986 and 1993, the Uruguay Round of GATT negotiations resulted in the largest market access tariff reduction package in history, with a scale 30 times greater than prior rounds This landmark agreement led to a significant decrease in tariffs, with most being reduced by at least one third.
Despite significant tariff reductions, new threats to the free-trade regime have emerged, particularly in the form of non-tariff barriers (NTBs), which have become a major trade-distorting mechanism As industry demands for protection have surged globally, governments have increasingly turned to NTBs to address these requests NTBs encompass any measures, aside from tariffs, that restrict or distort trade, including quantitative import restrictions and regulations that, while designed for different purposes, impact international trade.
Since the 1970s, global environmental issues like ocean pollution, biodiversity loss, climate change, and ozone depletion have heightened awareness among scholars, activists, and governments worldwide, highlighting the need for unprecedented international cooperation to address problems that were once viewed as local.
In recent years, the emphasis on environmental protection within international communities has intensified, making it a crucial factor in regulating international trade This shift is likely to give rise to a new category of non-tariff barriers (NTBs), known as environmental trade barriers (ETBs) As ETBs continue to gain prominence, they are playing an increasingly significant role in shaping international trade dynamics.
Environmental measures are implemented by importing countries to safeguard the environment and ensure the health and safety of wildlife, plants, animals, and humans These measures include various standards and regulations, such as technical standards, product-content requirements, sanitary and phytosanitary measures, mandatory labeling, and packaging requirements Within the World Trade Organization (WTO) framework, these measures can act as trade barriers by discriminating against foreign products and imposing additional costs on exporters It is essential to evaluate the criteria used to determine if a measure is excessively trade-restrictive and to identify the valid scientific principles and methods applied in this assessment.
Many countries impose environmental technical standards and regulations on imported products in the name of environmental protection, often without providing exporters with clear conditions beforehand, creating barriers to market access This situation disproportionately affects developing countries, which typically lack the financial and technical resources to comply with such measures Consequently, trade-restrictive effects from stringent environmental laws, especially those implemented by developed nations, raise concerns among officials and scholars in developing countries They fear that if these laws are endorsed by the WTO, they could be exploited by powerful trading nations, further hindering access for developing country products to domestic markets.
Market access remains a critical challenge for developing countries, particularly as tariffs decrease These nations express concern that environmental policies in developed countries may function as non-tariff barriers, hindering their product exports Many developing countries feel unprepared to navigate the increasingly complex environmental standards and regulations imposed by industrialized nations, due to a lack of technical and financial resources In fact, numerous developing countries perceive environmental, sanitary and phytosanitary (SPS), and other technical requirements as more significant obstacles to exporting agricultural and food products than traditional tariffs, especially when targeting the EU market.
Purpose of the thesis
Globalization makes more and more firms internationalize for proactive motives (e.g profit and growth goals) and reactive motives (e.g competitive pressures) (Hollensen,
A well-organized firm with a strategic approach to entering international markets can significantly increase its chances of success However, it is important to recognize that various obstacles and challenges are likely to arise during this process.
1991) It has been noted that closed markets (i.e., those with a high level of tariffs and/or NTBs) are the biggest challenge to firms entering international trade (Jeannet
In recent years, environmental trade barriers (ETBs) have emerged as significant challenges for exports from developing countries aiming to penetrate developed markets While there is substantial academic research on the effects of ETBs on international trade, there is a notable lack of studies focusing on their influence on managerial decision-making My thesis addresses this gap by examining the impact of organic certification on Chinese organic food firms exporting to the EU, with the goal of offering valuable insights for managers navigating this complex landscape.
Literature review
Definition of NTBs
Non-Tariff Barriers (NTBs), often referred to as Non-Tariff Measures (NTMs), are commonly defined in literature, with the term "measure" being favored by organizations like the WTO and UNCTAD for its neutrality Researchers such as Baldwin (1970), Walter (1972), Hillman (1991), and Deardorff & Stern (1997) have contributed various definitions to this concept.
Walter categorized non-tariff barriers (NTBs) as policies that disrupt trade volume, alter the composition of traded commodities, and influence the direction of trade.
Baldwin offers a more specific definition of Non-Tariff Barriers (NTBs), characterizing them as any measures that lead to a misallocation of internationally traded goods and services or the resources used in their production, ultimately diminishing potential real-world income.
Hillman defines a non-tariff barrier (NTB) as any government action or policy, aside from tariffs, that hinders the importation of goods into a country or discriminates against imports by not applying equally to domestic production or distribution.
Deardorff and Stern describe non-tariff barriers (NTBs) as all trade barriers excluding tariffs, encompassing well-known policies like import quotas and voluntary export restraints (VERs) Additionally, NTBs include a wide range of policies that can indirectly affect trade prices and quantities.
Moreover, several international organisations like UNCTAD (2004) and GATT/WTO
In 2002, the term "Non-Tariff Barriers" (NTBs) was formulated, highlighting that NTBs refer to any measures, other than tariffs, that protect domestic industries, although no official definition existed at that time (WTO, 2002) Movchan and Eremenko (2003) defined NTBs as measures closely linked to state activities that affect the prices, quantities, and direction of international trade flows, as well as the resources used in production This definition underscores the state's role in establishing NTBs, while some researchers have also suggested that actions by private individuals, such as entrepreneurs, can be considered a source of NTBs (Baldwin, 1970; Walter, 1972).
Types of NTBs
Reliable data on non-tariff barriers (NTBs) is limited, with UNCTAD’s TRAINS being one of the most comprehensive data sets available Additional sources of NTB information include notifications submitted to the WTO during the Doha Round’s negotiations on Non-Agricultural Market Access (NAMA), reports from industries to different governments, and barriers documented by regional trade organizations.
UNCTAD (1994) identified over 100 trade measures, categorizing them into seven broad types of non-tariff measures (NTMs), including para-tariff, price control, finance, automatic licensing, quantity control, monopolistic, and technical measures The core NTMs were further classified into three main categories: quantity control measures (excluding tariff quotas and enterprise-specific restrictions), finance measures (excluding payment terms and transfer delays), and price control measures (Bora et al., 2002).
This classification excludes measures related to production or exports Trade policy experts, such as Deardorff and Stern (1997), typically categorize non-tariff barriers (NTBs) and non-tariff measures (NTMs) into several key groups.
(i) Quantitative restrictions and similar specific limitations
Quantitative restrictions are enforced through a range of measures including import and export quotas, licensing requirements, voluntary export restraints, and prohibitions Additional mechanisms involve foreign exchange allocation restrictions, surrender requirements, and import monitoring Temporary bans may be enacted to balance trade, alongside discriminatory bilateral agreements and counter trade practices Other factors include domestic content and mixing requirements, mandatory certification, and specific allocation processes for implementing these quantitative restrictions.
(ii) Customs procedures and administrative practices
Customs procedures and administrative practices, including customs surcharges, minimum import prices, and customs classification, can significantly hinder trade Additionally, complexities in customs clearance, minimum customs value, excises, and special formalities such as stamping contribute to these trade barriers.
(iii) Non-tariff charges and related policies affecting imports
Imports can be influenced by a range of policies and non-tariff charges, including special sales taxes, variable levies, border tax adjustments, value-added tax, antidumping and countervailing measures, cash margin requirements, and rules of origin.
Government involvement in trade includes providing subsidies, participating in state trading, and managing specific goods through line ministries They also establish state procurement policies, offer tax exemptions for essential imports, and restrict the channels for importing food and agricultural products.
Governments establish various standards, including health and sanitary regulations, safety and industrial standards, and guidelines for packaging, labeling, advertising, and media, to ensure public safety and product quality.
Developing countries’ NTB concerns
Some literature had suggested that NTBs may now be the major obstacles faced by firms attempting to enter foreign markets (Czinkota et al., 1989; Jeannet & Hennessey,
In a 1988 analysis, the OECD examined non-tariff barriers (NTBs) impacting developing countries, addressing three key questions: the types of NTBs faced, the affected products, and the differences between North-South and South-South trade The study revealed that fishery products, electrical equipment, pharmaceuticals, textiles and clothing, the automotive sector, and food products were the most significantly impacted sectors It also found that customs and administrative procedures, along with technical barriers to trade (TBT), primarily posed challenges in North-South trade, while similar customs issues and import charges were prevalent in South-South trade (UNCTAD, 2005).
Technical Barriers to Trade (TBTs), customs and administrative practices, and Sanitary and Phytosanitary (SPS) regulations are significant concerns for developing countries facing Non-Tariff Barriers (NTBs) TBTs are the most frequently reported barriers, with nearly 46% of complaints related to technical regulations and standards, 26% concerning testing and certification arrangements, and 16% about marking, labeling, and packaging requirements These trade barriers often lead to substantial cost increases that hinder exports Customs and administrative procedures represent the second most common NTB, accounting for almost a third of notifications, with rules of origin and import licensing being the most significant issues Other notable barriers include customs valuation and formalities, which contribute to delays and rising costs SPS measures, while intended for legitimate purposes, are also frequently reported as barriers, with countries citing excessive formalities, time, and costs that restrict exports, alongside the burdensome documentation and bureaucratic processes required for SPS approvals.
Developing countries face significant challenges when exporting to developed nations, as they must navigate a complex landscape of Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) regulations The intricate and often unclear customs rules exacerbate these difficulties, leading to frequent complaints from exporters They struggle to comply with stringent product standards, testing and certification processes, as well as marking, labeling, rules of origin, and import licensing requirements (Fisher, 2006).
Environmentally-related NTBs
Environmental Trade Barriers (ETBs) can be categorized under various Non-Tariff Measures (NTMs) identified by UNCTAD, excluding price control measures There is a growing consensus on the need to broadly define environmental concerns in trade discussions Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures are consistently included in relevant research A recent WTO study highlighted that since the TBT Agreement's implementation in 1995, approximately 2,300 notifications have been received, with around 11% related to environmental issues The study considered six motivations for ETBs, which include protecting the environment, wildlife, plant health, animal health, human health, and human safety.
Environmental regulations impose limited restrictions, while human health and safety concerns linked to ETBs impact a broader range of products and a significant portion of global trade, maintaining similar levels of restrictiveness In comparison, plant and animal health issues are less critical Notably, wildlife protection, despite affecting fewer products, entails the highest degree of restrictiveness (Fontagné et al., 2001, 2005).
Market access for developing countries is often hindered by various environmental measures, such as regulations, standards, and import controls, which are increasingly adopted by nations worldwide (WTO, 2003) Among the notable non-tariff barriers (NTBs) affecting these countries, technical barriers to trade (TBTs) and sanitary and phytosanitary (SPS) regulations are particularly significant, as they directly relate to environmental concerns Consequently, the primary NTB issues for developing nations are largely categorized as environmental trade barriers (ETBs).
Treatment of NTBs in international agreements
Non-Tariff Barriers (NTBs) impact all World Trade Organization (WTO) members, particularly affecting exporters from developing countries who often find these barriers hinder their export activities As a result, NTBs have become a significant focus within the General Agreement on Tariffs and Trade (GATT) and WTO frameworks The WTO has established rules aimed at addressing NTBs, emphasizing the need for transparency, consistency, fairness, and timeliness in their management.
Recent trade agreements, particularly WTO negotiations, are tackling non-tariff barriers (NTBs) by addressing key challenges in trade facilitation These negotiations emphasize the need to streamline excessive documentation, enhance the use of information technology, improve transparency, clarify import and export requirements, and establish better cooperation among customs and government agencies.
The multilateral approach to addressing non-tariff barriers (NTBs) began with the Tokyo Round of the GATT in the 1970s, where only limited agreements were achieved, and participation in the resulting Codes was optional The issue gained significant traction during the Uruguay Round, which expanded the number of mandatory agreements on NTBs for all members, integrating them into the WTO dispute settlement mechanism Consequently, the WTO Agreement now serves as the primary framework for rules and practices aimed at combating NTBs, along with the established mechanisms for their implementation and enforcement (Tschọni & Wiedmer, 2003).
The European Union (EU) exemplifies a comprehensive approach to addressing non-tariff barriers (NTBs) in trade, aligning with its goal of a unified internal market and political union The Treaty of Rome includes articles frequently adjudicated by the Court of Justice to combat these internal trade obstacles In contrast, the European Free Trade Association (EFTA) adopts a different strategy, as it lacks a supranational body to enforce regulations despite prohibiting quantitative restrictions among its members Both the EU and EFTA have adopted similar frameworks in their free trade agreements (FTAs) with various countries across Central and Western Europe and the Mediterranean, although these agreements impose less stringent requirements for managing NTBs compared to the EU's internal trade policies.
Especially, the treatment of ETBs was given specific definition by the GATT/WTO
A number of GATT provisions were directly relevant to trade-related environmental issues Environmental concerns were also addressed in a number of different WTO Agreements and Decisions
(i) GATT 1994 — Articles I and III on Non-Discrimination
Article I of the WTO, referred to as Most-Favored-Nation Treatment, prohibits members from favoring the products of one country over those of others, with exceptions for regional free-trade agreements and preferential treatment for developing nations Article III, known as National Treatment, requires that imported goods be treated equally to domestically produced goods once they enter the market Together, these articles establish the WTO's non-discrimination rules, ensuring fair competition among member countries.
Article XI of the GATT 1994 focuses on the complete removal of quantitative restrictions imposed by nations on the import and export of goods.
It prohibits such restrictions to encourage countries to convert them into tariffs, which are more transparent and less-trade distortive instruments
(iii) GATT 1994 — Article XX on General Exceptions
Article XX on “General Exceptions” lays out a number of specific instances in which WTO members may be exempted from GATT rules These exceptions are provided in Article XX(b) (“measures necessary to protect human, animal or plant life or health”) and Article XX(g) (“measures relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”) The “chapeau” of Article XX is designed to ensure that the GATT — inconsistent measures do not result in arbitrary or unjustifiable discrimination and do not constitute disguised protectionism
The General Agreement on Trade in Services (GATS), negotiated during the Uruguay Round from 1986 to 1994, includes a "general exceptions" clause in Article XIV, mirroring GATT Article XX This article begins with an introductory "chapeau" that is identical to that of GATT Notably, paragraph (b) addresses environmental concerns, permitting WTO members to implement policy measures that may typically conflict with GATS if deemed "necessary to protect human, animal, or plant life or health," reflecting the language of GATT Article XX(b).
As under GATT, this must not result in arbitrary or unjustifiable discrimination and must not constitute protectionism in disguise
The TBT Agreement aims to prevent unnecessary trade barriers by regulating product specifications and conformity assessment procedures It acknowledges the rights of countries to implement these measures for the protection of human, animal, and plant health, as well as environmental safety Additionally, member countries can adopt conformity assessment procedures to ensure their protection standards are upheld.
The SPS Agreement focuses on food safety and the health regulations concerning humans, animals, and plants, allowing members to implement SPS measures based on risk assessments It emphasizes that such measures should not create unnecessary trade barriers or discriminate unjustly between members under similar conditions Additionally, the Agreement encourages the adaptation of SPS measures to the sources of imports and works alongside the TBT Agreement to minimize non-tariff barriers While it permits SPS measures for environmental reasons, these must still adhere to principles of risk assessment, non-discrimination, and transparency.
The WTO Agreement on TRIPS explicitly addresses environmental concerns in Section 5, particularly in Article 27, which allows member countries to exclude certain inventions from patenting to safeguard human, animal, or plant life and health, and to prevent serious environmental harm This provision empowers members to refuse patents on inventions that could pose risks to the environment, thereby aligning intellectual property protection with ecological sustainability.
The Agreement on Subsidies, which applies to non-agricultural products, is designed to regulate the use of subsidies Under the Agreement, certain subsidies referred to as
Non-actionable subsidies, as outlined in Article 8, included support for adapting existing facilities to meet new environmental standards (Article 8.2(c)) However, this provision expired completely at the end of 1999, and it was designed to enable Members to benefit from positive environmental externalities when they occurred.
The WTO Agriculture Agreement, established during the Uruguay Round from 1986 to 1994, aims to reform agricultural trade and promote market-oriented policies while emphasizing environmental protection.
At the conclusion of the Uruguay Round, two significant ministerial decisions were made regarding environmental issues The first, a Decision on Trade and Environment, established the Committee on Trade and Environment (CTE) to ensure that international trade and environmental policies are mutually reinforcing Additionally, a second Decision on Trade in Services and the Environment tasked the CTE with analyzing the interplay between services trade and environmental concerns, particularly focusing on sustainable development, to assess whether any changes to GATS Article XIV are necessary.
The rules and practices of both the WTO and the EU play a crucial role for developing countries, with WTO provisions offering a standardized framework for non-tariff barriers (NTBs) that all member nations must adhere to In contrast, EU regulations are often more ambitious and preferential, making the EU a key trading partner for developing nations Consequently, the EU's standards serve as a significant benchmark for enhancing domestic regulations, particularly in the areas of technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures (Tschọni & Wiedmer, 2003).
PPMs
Article XX of the founding agreement provides for exceptions even to the golden rules Exceptions are to protect human, animal and plant life and health; to protect human morals; to conserve “exhaustible” natural resources, and, perhaps most interestingly, to define products produced by prison labor as “unlike” other, physically identical, products not so made That is the point where the importance of how a product is made, of its PPM, was first recognized in the GATT (Arden-Clarke,
1998) Traditionally attention has focused on product standards More recently, however, increased attention had been paid to standards relating to PPMs (Vossenaar,
According to the OECD (1997), PPMs, or Production and Processing Methods, encompass the manufacturing processes and natural resource extraction practices The OECD categorizes PPMs into two main types: pr-PPMs and npr-PPMs Pr-PPMs aim to regulate consumption-related externalities by addressing product characteristics, including chemical properties, health risks, packaging requirements, waste management, and recycling Conversely, npr-PPMs focus on production-related externalities, examining the initial stages of a product's life cycle, from cultivation to the extraction of raw materials and the manufacturing of goods.
The PPM debate centers on the resistance of developing countries to technical barriers based on non-product-related processes and production methods (npr-PPMs), which could threaten their competitiveness This discussion has been prominent within the WTO's Committee on Trade and Environment (CTE), particularly peaking in the mid-1990s and resurfacing in recent years The TBT Agreement allows only product-related barriers under specific conditions, focusing on technical regulations, while its annex includes the Code of Good Practice for international voluntary standards, such as those outlined by ISO (Borregaard & Dufey, 2005).
WTO rules are often criticized for hindering legitimate environmental policies that differentiate products based on their production methods, such as banning imports of goods produced through polluting processes These distinctions are crucial for promoting clean production practices and discouraging harmful ones However, some member governments fear that such measures could disrupt trade, especially when production methods do not affect the final product The 1991 Tuna/Dolphin dispute highlighted the challenges of integrating trade-related environmental measures within the WTO framework, leading developing countries to worry about the imposition of developed nations' environmental standards through export conditionalities They argue that this approach contradicts economic principles, as WTO rules generally do not allow for the application of non-product-related production methods (npr-PPMs) to imports.
PPM-based mechanisms require stringent safeguards due to several challenges These standards can serve as Environmental Technical Barriers (ETBs) for trade, often leading to high compliance costs Additionally, the necessary technologies and raw materials may not be readily available in the exporting country, and the standards may not align with local conditions Furthermore, they can lead to the extraterritorial enforcement of the importing country's environmental policies, complicating international trade dynamics.
To effectively address the PPM issue, it is essential to identify "win-win" scenarios that enhance market access for developing countries while promoting environmental and developmental benefits International cooperation can facilitate supportive mechanisms, such as technology transfer and financial assistance, to tackle PPM-related challenges Additionally, well-structured eco-labeling and environmental certification programs can help developing nations benefit from the environmental concerns of industrialized countries, while also allowing them to improve their PPM standards Furthermore, proposals for transitioning to more environmentally-friendly PPMs should be actively considered.
Reponses to NTBs
Numerous non-tariff barriers (NTBs) significantly impact businesses' access to foreign markets, as highlighted by the OECD (2003) While various studies have identified NTBs in international trade, there is a lack of literature providing corporate management with effective strategies to address these barriers, particularly environmentally related NTBs (ETBs) Earlier analyses by Naumann and Lincoln (1991) and Zimmerman (1999) attempted to assist international managers in navigating NTBs, but did not focus on ETBs, which were not yet major concerns in international trade at the time This study emphasizes the importance of strategies for overcoming ETBs, which generally fall into three categories: WTO dispute settlement, international negotiations, and management actions.
DS is the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy From 1948, the GATT regulated
DS among member countries principally through its Articles XXII and XXIII (Gertler,
Between 1995 and 2005, the WTO received 335 disputes, reflecting 368 individual complaints from various countries (Wilckens, 2007) Developing countries often utilize the Dispute Settlement (DS) mechanism to address non-tariff barriers (NTBs) A notable instance occurred on January 30, 1996, when India, Malaysia, Pakistan, and Thailand challenged the United States' prohibition on shrimp imports, which the US justified by citing concerns over methods that endangered sea turtles (Kaczka).
1997) The Panel and Appellate Body reports were adopted by the DSB on 6 November 1998, and finally the US lost this case (Werksman, 1999)
Despite some advanced developing countries utilizing the Dispute Settlement Understanding (DSU), evidence indicates that developing nations face significant disadvantages within the WTO dispute resolution system Key factors contributing to this issue include the smaller value, volume, and variety of exports from individual developing countries, which limits their ability to mobilize legal resources effectively, and the high costs associated with accessing the WTO system.
Developing countries face significant economic barriers that hinder their participation in dispute settlement (DS) activities related to market access For example, a typical "litigation only" bill of $500,000 for an exporter in a market access case does not account for the additional resources needed for pre-litigation investigations or for public relations and political lobbying efforts required after litigation to ensure compliance (Bown & Hoekman, 2005).
Many developing and least developed countries have not utilized the WTO system since its inception, while G4 nations (European Community, United States, Japan, and Canada) are disproportionately represented Research by Bown (2005) indicates that exporting countries with limited trade retaliation power, insufficient resources to cover legal costs, reliance on the respondent country for assistance, or involvement in preferential trade agreements are less likely to engage in WTO litigation These challenges are commonly faced by developing countries within WTO membership.
Guzman and Simmons (2005) found that developing countries utilize the Dispute Settlement Understanding (DSU) due to their inability to effectively pursue legal cases against trade law violators Similarly, Besson and Mehdi (2004) highlighted that these nations face challenges in winning disputes due to factors such as asymmetric legal capacity, economic dependence on bilateral assistance, and various international political influences.
The World Trade Organization (WTO) provides specific guidelines for bilateral trade agreements, notably through Article XXIV of GATT, which permits Free Trade Agreements (FTAs) that aim to eliminate trade barriers on nearly all goods within a decade among member countries Additionally, Article V of GATS facilitates "regional integration agreements," promoting deeper liberalization of trade in services among nations.
Jank (2003) emphasized that market access is more effectively achieved through bilateral or regional frameworks, as fewer participating countries enable deeper trade liberalization These negotiations also focus on reducing or eliminating non-tariff barriers (NTBs), including standards and rules of origin, which persist in both developed and developing nations (ILEAP, 2004) For instance, in April 2005, the EU released a booklet outlining restrictive measures on Chinese textile products under Article 242, detailing the conditions for such restrictions By June, an agreement on textile trade was reached between China and the EU, which was positively received by the textile industry Officials from the China Association of Enterprises with Foreign Investment described it as a win-win outcome resulting from challenging negotiations They highlighted that the China-EU agreement illustrates that while differences and challenges arise during global economic and textile integration, adhering to free trade principles and engaging in equal negotiations can lead to mutually beneficial solutions (MOFCOM, 2005).
As consumer preferences and government policies increasingly prioritize environmental sustainability, managers are recognizing the strategic significance of their environmental decisions Neglecting the environmental impact of these decisions can jeopardize a firm's financial stability and its competitive edge within the industry.
Blocked markets, characterized by high entry barriers from governments, labor unions, and interest groups, require firms to adapt their marketing strategies, as noted by Kotler (1986) and Hollensen (2004) The marketing mix, traditionally defined by the four Ps—product, price, promotion, and place—was introduced by McCarthy in 1960 To navigate blocked markets, Kotler advocated for "megamarketing," which includes two additional Ps: power and public relations He urged international executives to analyze the power dynamics, formulate strategies, and engage in lobbying efforts to influence foreign markets Duffy (1991) echoed this sentiment, emphasizing the importance of educating the public and policymakers about protectionist myths and advocating for cooperative trade agreements to reduce barriers.
Market entry considerations
In their 1992 study, Kim and Hwang identified that government-imposed restrictions on entry mode options led to the elimination of 18 cases regarding multinational firm entry-mode choices This finding suggests that trade barriers are a critical early factor in determining market entry decisions and the selection of appropriate entry modes to navigate these challenges.
The basic choices for entry into foreign markets have been clearly established (Figure
When entering international markets, firms can choose from three main entry modes: export modes, intermediate modes, and hierarchical modes Export modes include indirect, direct, and cooperative export methods, while intermediate modes encompass contract manufacturing, licensing, franchising, joint ventures, and management contracting Hierarchical modes involve various structures such as domestic and foreign sales representatives, sales and production subsidiaries, regional headquarters, and wholly owned subsidiaries Each mode presents different levels of control, risk, and flexibility Ultimately, the choice of entry mode depends on market potential and country risk, with tariffs and other barriers being significant factors to consider.
(low control, low risk, high flexibility)
Intermediate modes (shared control and risk, split flexibility)
(Investment modes) (high control, high risk, low flexibility)
Figure 3: Classification of market entry modes
To successfully navigate trade barriers, companies must select suitable entry modes, especially when faced with high tariffs or non-tariff barriers that restrict their options (Alexandrides & Bowers, 2005) The decision regarding entry modes is influenced by four key groups of factors: internal factors, external factors, desired mode characteristics, and transaction-specific behavior (Hollensen, 2004).
Figure 4: Factors affecting the foreign market entry mode decision
Hollensen (2004) highlights that product and trade regulations, along with preferences for local suppliers, significantly influence entry and operational strategies for companies The inclination to "buy national" often leads businesses to pursue joint ventures or contractual agreements with local firms, which facilitate the development of local contacts, negotiation of sales, and establishment of distribution channels while also enhancing the foreign image Additionally, local companies provide valuable insights into market conditions and simplify access due to their familiarity with local customs and regulations In cases where product standards require substantial adaptation, firms may opt for local production, assembly, or finishing facilities, thus employing hierarchical modes of entry.
Research Methodology
Introduction
According to Potter (1996), methodology is a strategic plan designed to achieve specific goals, serving as a blueprint for the effective use of tools McGrath emphasizes that research methodologies significantly influence both the validity and generalizability of a study.
& Brinberg, 1983) The step-by-step scientific methodology proposed here was largely inspired by the work of Yin (2003), Eisenhardt (1989), Miles & Huberman
(1994) and several others (Stake, 1995; Devers, 1999; Crabtree & Miller, 2000; Patton, 2002) who are strong proponents and possess extensive experience in this research approach and qualitative methods in general (Paré, 2004)
The selection of appropriate research methodologies is crucial for drawing valuable conclusions This chapter will outline and justify the methodologies employed in this thesis, providing essential guidelines for data collection and processing.
Research Approach
According to Guba and Lincoln (1994), two approaches (quantitative and qualitative) are available to researchers “Qualitative” is often used interchangeably with
Naturalistic and quantitative approaches often intersect with experimental methods, as highlighted by Lynch (1983) Quantitative data, represented numerically, reflects concepts that can vary in magnitude, while qualitative data, expressed through words, encompasses descriptive insights.
Qualitative research offers in-depth insights through detailed descriptions of situations, events, and behaviors, as well as direct quotations reflecting individuals' experiences and beliefs (Patton, 1980) This approach fosters openness among participants, facilitates the development of new theories, and accommodates larger studies for enhanced generalization of findings In contrast, quantitative methods focus on summarizing data to support generalizations, often resulting in a narrower and more superficial dataset (O’Neill, 2006).
This study aims to investigate the impact of Export Trading Blocs (ETBs) on exporters from developing countries, focusing on how these entities influence managerial behavior and decision-making processes.
This article aims to explore a phenomenon that remains underdeveloped and cannot be quantified numerically Consequently, a qualitative research method is more appropriate for this investigation, as it allows for a deeper understanding of the subject compared to quantitative methods.
Research strategy
Marshall and Rossman (1999) concluded that the strategy was a road map, an overall plan for undertaking a systematic exploration of the phenomenon of interest Yin
In 2003, five distinct strategies for collecting and analyzing empirical evidence were identified: experiments, surveys, histories, archival information analysis, and case studies These strategies are differentiated based on three key factors: the nature of the research questions, the level of control an investigator has over behavioral events, and the emphasis on contemporary versus historical events.
Table 1: Relevant situations for different researches
Strategy Form of research question
Requires control over behavioral events?
Experiment How, why Yes Yes
Survey Who, what, where, how many, how much
Who, what, where, how many, how much
History How, why No No
Case study How, why No Yes
This study addresses a research question focused on contemporary events and empirical data, indicating that historical strategies and archival analysis are unsuitable Given the inability to control behavioral events, experimental methods will be excluded A case study methodology is ideal for exploring broad and complex phenomena that require a holistic and in-depth investigation within their contextual settings According to Yin (2003), case study research is particularly appropriate for "how" and "why" questions, as it traces operational links over time rather than mere frequencies Therefore, a case study is selected as the research strategy to provide a comprehensive description and analysis of a specific situation (Bonoma, 1985; Feagin et al., 1991; Yin, 2003).
Yin (1993) categorizes case studies into three main types: exploratory, explanatory, and descriptive Exploratory case studies often serve as a preliminary step in social research, while explanatory case studies are utilized for causal investigations Descriptive case studies necessitate the development of a descriptive theory prior to the commencement of the project.
This research employs a descriptive case study design, as outlined by Kumar (1999), to systematically examine a specific situation or problem, offering insights into community living conditions and attitudes towards relevant issues The choice of this methodology is primarily driven by the limited existing literature on the subject.
Research on the impact of Export Trade Barriers (ETBs) on exporters from developing countries is still in its infancy, making descriptive case study research the most suitable approach for understanding this topic According to Yin (2003), descriptive case studies are commonly employed in the early stages of theory development, particularly when examining phenomena with minimal theoretical background This methodology adheres to Yin's recommendations and consists of four distinct stages, as illustrated in Figure 5.
Design of the case study
Conduct of the case study
Analysis of the case study evidence
Writing up the case study report
Figure 5: Scientific approach for conducting a case study research
Case Selection
In case study design, a crucial decision is whether to include one or multiple cases, as this significantly impacts the learning outcomes within the study's timeframe (Yin, 2003; Eisenhardt, 1989) A single case is suitable when it is unique or critical for testing a well-defined theory, though critics argue that reliance on one case limits generalizability Conversely, a multiple-case design should involve a sufficient number of cases to ensure robust findings, with the number of cases determined by the researcher's judgment and desired certainty regarding results (Yin, 2003) Given the objectives of this study, a multiple-case design is deemed appropriate.
Case selection for this study follows the methodology proposed by Yin (2003) and McCutcheon and Meredith (1993), emphasizing the importance of identifying exemplar cases characterized by unique circumstances The organic food sector, undergoing significant changes due to Environmental Trade Barriers (ETBs), presents an ideal context for such case studies The selection process began by identifying thirty-one organic exporters in China listed on the ITC website, all of which possess the market influence necessary to navigate the challenges posed by ETBs Initial contact was established through e-mail, providing a detailed explanation of the research to the managers overseeing ETBs related to organic exports, ensuring the firms could serve as exemplar case studies Ultimately, eight firms expressed their willingness to participate in interviews, qualifying them as exemplars for this research.
Data Collection Methods
Data collection methods significantly influence the reliability and validity of tests (Pedhazur & Schmelkin, 1991) According to Yin (2003), case study research utilizes six sources of qualitative evidence: documentation, archival records, interviews, direct observation, participant observation, and physical artifacts By integrating multiple data collection methods, researchers can mitigate single method bias and achieve a more comprehensive understanding of the phenomena being studied (Bonoma, 1985; Yin, 1999) Each method presents its own advantages and disadvantages, as outlined in Table 2, which details the strengths and weaknesses of various types of evidence (Yin, 2003).
Table 2: Sources of evidence in case research: strengths and weaknesses
Source of evidence Strengths Weaknesses
Documentation Stable-can be reviewed repeatedly
Unobtrusive-not created as a result of the case study
Exact-contains exact names, references, and details of an event
Broad coverage-long span of time, many events, and many settings
Retrievability-can be low Biased selectivity, if collection is incomplete
Reporting bias-reflects (unknown) bias of author Access-may be deliberately blocked
Archival records (Same as above for documentation)
(Same as above for documentation) Accessibility due to privacy concerns Interviews Targeted-focuses directly on case study topic Insightful-provides perceived causal inferences
Bias due to poorly constructed questions Response bias
Inaccuracies due to poor recall Reflexivity-interviewee gives what interviewer wants to hear
Reality-covers events in real time Contextual-covers context of event
Time consuming Selectivity-unless broad coverage Reflexivity-event may proceed differently because it is being observed Participant observation
(Same as above for direct observations) Insightful into interpersonal behavior and motives
(Same as above for direct observations) Bias due to investigator’s manipulation of events Physical artifacts Insightful into cultural features
This qualitative case study will utilize two primary sources of evidence: interviews and documentation According to Yin (2003), interviews are a crucial component of case study research, providing valuable insights Additionally, Kaplan and Maxwell emphasize the importance of these methods in gathering comprehensive data.
The main objective of interviews is to gather respondents' perspectives and experiences in their own words, rather than limiting data collection to predefined response options To obtain primary data, telephone interviews will be conducted with eight senior managers or executives involved in strategic decision-making Researchers must ensure that their sampling strategy aligns with the inquiry's purpose Table 3 presents various common informant sampling strategies recommended by Patton (2002).
Table 3: Sampling strategies for selecting informants
Maximum variation Documents diverse variations and identifies important common patterns Homogeneous Focuses, reduces, simplifies; facilitates group interviewing
Snowball or chain Identifies cases of interest from people who know people who know what cases are information-rich
When conducting research, it is essential to strategically select information-rich cases that align with the study's objectives and available resources Additionally, maintaining an opportunistic approach allows researchers to follow new leads that arise during fieldwork, embracing unexpected opportunities and demonstrating flexibility in their methodology.
To overcome the problems of bias, poor recall and poor or inaccurate articulation, Yin
In 2003, it was emphasized that corroborating interview data with information from various sources is crucial for data collection Systematic searches for relevant documents play a vital role in this process, particularly for case studies Documents serve to support and enhance evidence from other sources by verifying details such as correct spellings, titles, and names of organizations, as well as providing additional specific information and inferences (Yin, 2003) Consequently, secondary data will be gathered from relevant documentation that includes the background of the sample firms involved in the case study.
Data analysis
Case studies generate substantial data that can be challenging to analyze and interpret According to Yin (2003), data analysis involves examining, categorizing, and recombining evidence to address the study's initial propositions The analysis process in case studies is often underdeveloped and complex Yin emphasized the importance of a general analytic strategy to guide decisions on what to analyze and why, aiming to ensure fair treatment of evidence and compelling conclusions while ruling out alternative interpretations He identified two main analytic strategies: relying on theoretical propositions and developing a comprehensive case description.
A comprehensive analytic strategy should incorporate three key techniques: pattern-matching, explanation-building, and time-series analysis (Yin, 2003) Pattern-matching, highlighted by Trochim (1989) as a highly effective analysis method, involves comparing an empirically derived pattern with a predicted one to enhance internal reliability, even without quantitative criteria for comparison Explanation-building, a subset of pattern-matching, involves an iterative process of developing and refining theoretical statements about the case Additionally, time-series analysis is a recognized method in both experimental and quasi-experimental research (Tellis, 1997) This study employs these analytic techniques, particularly focusing on pattern-matching, to develop a detailed case description.