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The Chinese Case Against Australian Barley Subsidies

The Chinese Customs authorities imposed tariff duties of 80.5% on Australian barley exports in a move that is likely to cost farmers $600 million. The reasons for the Chinese actions have now been made public.

At first blush, the Chinese allegations appear to be technical in nature. They assert that Australian authorities failed to respond to demands for information in the form it was required under Chinese legislation. Australian authorities deny that this is the case but if it is true it looks as if Australian officials may have blundered badly.

The Chinese case also asserts that the Australian Government subsidized barley farmers by way of payments from the Sustainable Rural Water Use and Infrastructure Program. This is the fund established under the Murray Darling Basin Scheme which allocated $13 billion for the purchase of water rights from farmers. The Chinese allege that in making these payments the Australian Government did not comply with its own law.

Australian officials deny that this is the case.

However, the implementation of the Murray Darling Plan left a lot to be desired. When Labor’s Tony Burke was the water minister in 2010 he amended the legislation to incorporate a triple bottom line so that water purchases had to take account of environmental, social, and economic issues.

This led to some questionable practices such as huge payments for dubious water rights, infrastructure spending that doesn’t actually save water, and massive subsidisation of irrigation expansion into areas that were not previously irrigated. Stories abound of favored companies or regions reaping large windfalls at the expense of taxpayers, other farmers, the environment, or all three.

Although the Australian officials claim to have co-operated fully with Chinese investigators they have a reputation of being less than open and transparent. It should have been obvious that in the context of current sensitivities they needed to do everything by the book.

The South Australian Royal Commission into the Murray Darling found that the Commonwealth officials claim to be open and engage in discussion with stakeholders should be viewed with “deep suspicion”.

The barley case reveals a weakness in Australian expertise. It is clear that Australia’s response to the Chinese complaint should have been led by a trade lawyer who was across the water management issues and was also familiar with China’s trade law approach. Officials with this level of expertise are thin on the ground. It is likely that most of the officials who were involved in the negotiation of the China Australia Free Trade Agreement have now moved on.

At the moment there is no systematic training of young trade lawyers in the skills required for international trade litigation. On the other hand, China has at least four universities that provide specialised trade law training.

Going to the World Trade Organisation to challenge the Chinese tariffs runs huge risks for Australia. If it loses the case then there are a range of other industries such as cotton, almonds, and walnuts that are more directly funded by the Murray Darling Plan and would be exposed to anti-subsidy action by other market countries.

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