The agreement between Australia and China to resolve a dispute over Chinese import duties on Australian barley without World Trade Organization (WTO) involvement is evidence of a marked improvement in relations.
It inspires confidence that Australia can maintain a constructive relationship with China, even as US-China relations continue to deteriorate.
China imposed an 80.5% import tariff on Australian barley in May 2020 because Australian barley was sold in the Chinese market at a price lower than the price in Australia (known as “dumping”) and was subsidized, causing Chinese barley growers harmed.
The Chinese Ministry of Commerce launched an anti-dumping and anti-subsidy investigation into barley in November 2018. At the time, this was seen as retaliation for more than a dozen anti-dumping measures Australia had taken against Chinese imports over a decade.
Read more: Barley is not a random choice – this is the real reason why China is taking on Australia over dumping
But the timing of the tariff decision, just weeks after Australia called for an international inquiry into the origins of COVID-19, meant it was seen as part of a wider campaign of Chinese economic coercion, including actions against Australian coal, beef, lobster and wine.
In December 2020, Australia filed its claim against the barley tariffs with the WTO. Due to the broken official relationship at the time, the dispute could not be resolved in mutual consultation.
Last week (on 11 April), both sides asked the WTO to suspend the proceedings. This follows nearly a year of efforts to restore relations following the election of the Albanian government.
The agreement came the same week that Australia hosted the Vice Foreign Minister of ChinaMa Zhaoxu, the highest-ranking Chinese official to visit Canberra in more than six years.
Official visits from Chinese Foreign Minister Qin Gang (who met Australian Foreign Minister Penny Wong on the sidelines of a G20 meeting in New Delhi in March) and senior officials from other ministries such as agriculture and education will expected to follow.
Office of the Minister of Foreign Affairs/AAP
What the barley deal means
Dig into the details of the barley deal, China has agreed to accelerate barley tariff revisions in the next three or four months.
Chinese Ministry of Commerce started a review
on April 14, based on a request filed by the China Alcoholic Drinks Association. The review is necessary for the ministry to find reasonable grounds to cut the duties. The standard term for such an assessment is 12 months.
For Australia, this provides a faster path to getting barley back into the Chinese market than continuing with the WTO case.
While a WTO panel decision on the dispute was expected within days, a finding that Australia was not dumping barley in China could have meant another year before tariffs were ended. This is because China retains the option to appeal the decision. Even if it then lost the appeal, it could still have dragged out the removal of the tariffs.
Read more: Taking China to the World Trade Organization plants a seed. It won’t be a quick or easy win
The approach provides a useful template for how Australia can similarly get China to lift the tariffs (from 116% to 218%) imposed on Australian wine March 2021.
Australia initiated the WTO procedure in June 2021 and the WTO panel was established four months later. A decision is expected to be made in mid-2023. But continuing the process will also take much longer for the rates to be removed.
This approach may also serve as a model for the parties to suspend WTO dispute resolution procedures China vs Australia for its anti-dumping and anti-subsidy tariffs on selected Chinese imports.
Read more: It may look like China is winning the trade war, but the import bans are a diplomatic bust
Knocking on the door of the Trans-Pacific Partnership
For China, a more strategic goal behind the agreement would be reducing Australia’s resistance to China joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The trade pact involves 11 Pacific countries, and now Britain, whose request to join was approved by the other signatories in March.
China submitted its application to join after the UK in September 2021. The country, too, needs consensus from all CPTPP parties, and Australia has made its position crystal clear: China must end its trade sanctions and demonstrate the ability and willingness to uphold the CPTPP’s high standards.
Resolving the barley dispute is a starting point. It will also demonstrate that a rules-based global trading system can influence China’s behavior. That is not unexpected, because no country has that a greater commitment in world trade. Last year, China’s trade in goods was $6.3 trillion, nearly $900 billion more than the US.
For Australia, starting a discussion on China’s entry into the CPTPP could accelerate the process of regaining market access for its exports and provide an opportunity to secure China’s commitment to a rules-based agreement that exceeds WTO minimums.
From cautious optimism to reasonable confidence
The expected resolution of the barley dispute is not an isolated one. It demonstrates the effectiveness of the Albanian government’s diplomatic approach towards China.
This entailed incrementally rebuilding economic cooperation and managing disagreements over values and security issues through calm and professional engagement. Amid geopolitical tensions with the US, China is also trying to stabilize its external environment.
Economic cooperation remains a prominent area of common interest. Add to that political will and diplomatic wisdom, and an assessment of cautious optimism can be replaced by an assessment of reasonable confidence in the upward trajectory of the bilateral relationship.
