Maximum Residue Limits and Agricultural Trade: Evidence from China

In recent years, maximum residue limit (MRL) standards regulated by governments have become increasingly stringent. MRL standards aim to protect human health and environmental sustainability by setting maximum allowable residue concentrations for chemical substances in imported products. In November 2020, the European Union published EU Regulation 2020/1085, imposing stricter MRL standards on imported agricultural products. As standard-setting leaders implement more restrictive MRLs and export-oriented countries adjust their chemical practices to align with these standards, it is essential to examine the emerging trade patterns associated with MRLs and exports. This paper investigates the impact of maximum residue limits (MRLs) on China's agricultural exports, using disaggregated product-level data (HS eight-digit) for 237 products across 43 importing countries from 2006 to 2021. The results show that a 10% more stringent MRL at the mean in the previous year leads to a 6.6% decrease in the current-year export values of China's agricultural products. Stricter MRLs for insecticides significantly reduce China's agricultural exports, while MRLs for fungicides and herbicides have no significant effect. Additionally, I analyze the top 10 most frequently notified chemical substances in goods from China, as reported by the European Commission's Rapid Alert System for Food and Feed (RASFF) over 2020-2024. More stringent MRLs for Chlorpyrifos, Diafenthiuron, and Carbendazim significantly impede China's agricultural exports to the European Union. Conversely, China's agricultural exports to USMCA, ASEAN, and BRI member countries are sensitive to more restrictive MRLs for Diafenthiuron, while benefiting from tougher MRLs for Tolfenpyrad, Dinotefuran, and Imidacloprid. The impacts of MRLs on the extensive and intensive margins of exports suggest that more restrictive MRLs do not significantly affect the probability of exporting, but they reduce export values conditional on the export decisions. The findings suggest that tightening MRL standards by importing countries do not necessarily impede agricultural trade; in some cases, they facilitate China's agricultural exports to these markets. This study provides policymakers with a comprehensive analysis to formulate strategies for enhancing agricultural exports and highlights the role of food safety standards in sustainable development.