Abstract

In recent years, an optimistic view of international economic integration countering the pollution haven hypothesis has gained momentum. It argues that international integration can benefit developing countries' environments by fostering the adoption of voluntary environmental standards, such as ISO 14001 certification, coined as the "trade up" argument by Prakash and Potoski (2006). This paper investigates the validity of the "trade up" argument in the context of China. This paper finds that international trade does gear up the adoption of ISO 14001 standards in China through increasing pressures from international green customers. However, our model and case studies suggest that the adoption of ISO 14001 certification does not necessarily improve firms' compliance with existing environmental regulations in China. We also find that in China, ISO 14001 certification motivates little, if any, environmental performance improvement beyond bottom-line environmental regulations. This finding suggests that we need to treat the "trade up" argument with caution, especially as the assertion was made that "Chinese authorities also could use ISO 14001 as an alternative to regulations" in consideration of limited policy enforcement capability (Conway, 1996; Christmann and Taylor, 2001). ISO 14001 is a complement to, instead of a substitute for, environmental regulations.