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Australia Needs To Tread Carefully With China Over Trade

Last week Australian officials in Beijing handed over our response to allegations that Australian farmers were dumping barley. The response amounted to 10,000 pages of data from virtually every barley producer in South Australia and Western Australia, setting out in detail their costs of production.

The aim of the brief was to demonstrate that while the brewery in Qingdao had driven a very hard bargain over the price to be paid for high-quality malt barley, the farmers were not selling below the cost of production. They were probably undercutting their Chinese and Canadian competitors, although the brewery has a preference for Australian malt on flavor grounds, as a visit to the Qingdao beer museum makes abundantly apparent.

According to Trade Minister, Simon Birmingham, the response cleared up some misconceptions on the part of the Chinese, such as the idea that the Murray Darling funding amounted to a subsidy to the barley producers. Minister Birmingham has admitted that he hasn’t spoken to the Chinese Commerce Minister yet, even though he has tried to establish contact. This is understandable because the Chinese Communist Party is to hold the National Peoples’ Congress this week. The President, Xi Jinping, will not want any controversial comments while it is in progress.

However, the Commerce Minister, Zhong Shan, did appear in public to say that Chinese ‘wet markets’ need to be subject to stricter regulations. This was a conciliatory gesture that seemed to indicate that the Chinese Government would co-operate with the World Health Organisation inquiry into the origin of the pandemic.

Some Chinese officials may have supported the idea of trade coercion of Australia because the Morrison Government initiated the idea of an independent inquiry into the pandemic. There is a view in China that, as Dr. Andrew Leigh put it, Australia is playing the role of America’s deputy sheriff. But a more plausible explanation is that the barley tariff is retaliation for Australia’s anti-dumping action against Chinese steel exports.

Australia had an understanding with China, when it was negotiating the free trade agreement, that it would treat China as a market economy. This meant that determining whether dumping occurred would be based on actual accounts from companies. At that time the Chinese Premier Zhu Rongji had introduced rules that required Chinese companies to meet international accounting standards.

However subsequent Chinese leaders rescinded the regulations and the obligation for state-owned companies to keep proper accounts. Australia then decided not to treat China as a market economy which meant it could employ an arbitrary test to determine whether Chinese state-owned companies were dumping.

It is likely that China will want Australia to make some concessions on the way it makes dumping determinations in exchange for dropping the barley anti-dumping action. Minister Birmingham says that if China is unhappy over the steel measures, then it should take the matter to the WTO but that is fraught with danger. The Productivity Commission has argued that Australia’s anti-dumping actions sail close to the wind when it comes to the WTO rules and we could lose in the dispute resolution process.

In a situation where most of the workforce is receiving handouts then Australia is wide open to allegations that it is using subsidies. It should be careful about poking the WTO panda.

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