Highlights :

• Sanitary regulations introduce an element of uncertainty for exporting firms, in relation to border rejections.
• We examine the impact of restrictive non-tariff measures at firm-level using information on a de facto obstacle: border rejection after inspection.
• After border rejection of a certain product, some Chinese exporters of this product exit the market, there are partially replaced by new entrants, and incumbents increase their market share.
• Border rejection create an informational externality detrimental to small Chiense exporters.

 Abstract :
The cost of complying with a sanitary standard is certain. However, such regulatory measure introduces an element of uncertainty for exporting firms in relation to border rejections. Shipments may fail to pass inspections and may be refused entry into the importing country. This risk is shaped by variance in the quality of the exported product, and the stringency of the border controls. Large developing countries are over-represented in import refusals and may be targeted by inspectors. We examine how the risk of rejection at European borders on safety grounds is affecting Chinese agri-food exporters. We combine information from the European Rapid Alert System for Food and Feed with Chinese firm-level export data by product, destination and year for the period 2000-2011. We show that information externalities and reputation effects are important. Border rejections amplify the turnover among firms at the extensive margin of trade. This risk is curbing small Chinese exporters and resulting in a concentration of Chinese exports from big and more productive exporters.

 Keywords : Food Safety | Border Inspections | Import Refusals | Uncertainty | Firm Heterogeneity

 JEL : F14, L25, Q17, Q18