Why China believed it had a case to hit Australian barley with tariffs



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Weihuan Zhou, UNSW

China’s landmark investigations into Australian barley led to the imposition of “anti-dumping” and “anti-subsidy” tariffs of 80.5% in May, threatening an Australian export market worth $A600 million a year.

China says it made its own calculations on the extent to which Australia subsidised barley after Australian authorities failed to give it all the information it needed in the form it requested.

It set out its findings on subsidies in a report at present only available in Chinese.

One was that Australian officials “did not comply” with its requirements in relation to the Sustainable Rural Water Use and Infrastructure Program.


‘The Australian government reported the overall situation in the answer sheet, but did not comply with the requirements of the investigating authority’

Australia disputes that conclusion.

At first glance the possibility that Sustainable Rural Water Use and Infrastructure Program could have had anything to do with subsidising barely exports seems baseless.

The Murray Darling Basin Plan, of which the Sustainable Rural Water Use and Infrastructure Program is a part, is a long-running program aiming to remedy a century of over-exploitation of water.

It includes no discussion of production targets, export volumes or anything else that might be expected to set off trade alarm bells.

Plan more than environmental

But the plan and its A$13 billion budget is about more than the environment.

It originally prioritised the environment, but in 2010 its goal was explicitly changed to address a triple bottom line of economic, social and environmental concerns.

From there, its management became a major economic and political issue.




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Scandals surround 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 favoured companies or regions reaping large windfalls at the expense of taxpayers, other farmers, the environment, or all three.

Administered with ‘habitual’ secrecy

Australia’s Department of Agriculture says the government fully engaged with China’s investigation, “including providing extensive information on production and commercial information on the Australian barley industry”.

But the department hasn’t always been forthcoming about its operations.

A South Australian Royal Commission concluded that its claim to be committed to engaging in public debate and open dialogue should be regarded with “deep suspicion”.

The separate Murray Darling Basin Authority operated with “an unfathomable predilection for secrecy”.

The behaviour was “habitual”, in the assessment of the Royal Commission.

We might have given China a case

Even if Australian officials did participate in the Chinese investigation in good faith, the potential for confusion is considerable given the jargon that engulfs both water management and trade law.

Few water managers speak trade law and equally few trade lawyers understand the jargon of the Murray Darling Basin Plan.

From a trade law perspective, although the Sustainable Rural Water Use and Infrastructure Program and the Basin Plan do not explicitly subsidise exports, the fact that much of the Basin’s produce is exported means it could be argued that they distort trade.




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It is open to a country such as China to take action if the program has conferred benefits to an Australian industry and the subsidised exports have caused a material injury to a competing domestic industry.

China alleges this is the case for barley, but a stronger case could perhaps be argued for the Basin’s bigger export crops: cotton, almonds and walnuts.

Part of the reason is that the program involves government spending, but it is possible to argue that the implementation of the Basin Plan has also subsidised exporters in another way, by environmental mismanagement.




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The Barwon-Darling has been described by environmental regulators as “an ecosystem in crisis”. Contributing to the crisis has been a system that allocates scarce water to irrigators and diverts huge volumes of floodwater into private dams.

This arguably illegal practice of “floodplain harvesting” provides huge benefits to cotton exporters.

It is uncertain whether China’s barley decision will bring about changes to Australian water management that downstream communities, irrigators, Indigenous nations and environment groups have long called for.

It would help if water regulators explained what they were doing in terms that can be understood by ordinary Australians and Chinese trade experts alike.


Contributing to this article were Maryanne Slattery, a former director at the Murray Darling Basin Authority and a director of water consultancy Slattery Johnson, Rod Campbell, Research Director at the Australia Institute and Allan Behm, director of the Australia Institute’s International and Security Affairs program.The Conversation

Weihuan Zhou, Senior Lecturer and member of Herbert Smith Freehills CIBEL Centre, Faculty of Law, UNSW Sydney, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital Signs: Australian barley growers are the victims of weaponised trade rules


Richard Holden, UNSW

Trade tensions between Australia and China have escalated to the point where China has placed an 80.5% tariff on Australian barley imports, beginning this week.

China has been a huge market for Australian barley. It accounted for more than 70% of Australia’s exports between 2015 and 2018 and in 2016–17 it bought almost 6 million tonnes.



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While China’s imports fell to 2.5 million tonnes last financial year, this was still more than half of Australia’s total barley exports, worth about A$600 million to Australian farmers.

The tariff on Australian barley won’t hurt China much. It can simply buy from other countries such as France, Russia, Argentina and Canada.

In terms of Australia’s total volume of exports (more than A$450 billion annually) the likely losses are not huge. But it is meaningful and painful to Australia’s barley industry.

It is important this matter be resolved.

But the broader issue is how to avoid ongoing conflict with our biggest trading partner. Doing that means understanding what the barley dispute is really about. Because it’s unlikely to really be about barley.

What is China upset about?

It would be reasonable to deduce China’s recent actions stem from Australia’s advocacy for an investigation into the source of the COVID-19 pandemic – something first raised by foreign minister Marise Payne and championed by Prime Minister Scott Morrison, along with the United States and other countries.

But there is a longer history of simmering tensions between the two nations.

There is, for example, Australia’s exclusion of Chinese company Huawei from building our 5G telecommunications network. This is a matter China’s ambassador to Australia, Cheng Jingye, called a “sore point and thorny issue” as recently as February.

Another view is that it is about trade issues – that China is accusing Australia of dumping in retaliation for Australia’s use of global anti-dumping provisions against China.

As pointed out by my colleague Weihuan Zhou:

Dumping is essentially price discrimination, in which a producer sells a product to an export market at a lower price than it sells it at home. As such, it is often condemned as ‘unfair trade practice’ which accords exporters a competitive advantage over producers of similar goods in the market of importation.

Australia has been a keen user of the World Trade Organisation’s rules against dumping. Many Chinese industries have been targeted under anti-dumping cases brought by Australia (and other countries), including steel, aluminium products, solar panels, and even copy paper.

So perhaps this is a case of “what goes around comes around”.




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China used anti-dumping rules against us because what goes around comes around


In any event, it is shaping up to be a thorny issue for Australia.

Australia’s trade minister, Simon Birmingham, has rightly disagreed with China’s characterisation of Australia as dumping barley, saying: “We reject the basis of this decision and will be assessing the details of the findings while we consider the next steps”.

Australia will take this case to the WTO and argue it has not subsidised barley being exported. But these cases are tricky to prove, can take substantial time (likely more than a year and possibly much longer). In the meantime, China can impose duties, with dire consequences for imports of Australian barley.

Always in breach?

Precisely because it is difficult to determine the underlying economics of whether dumping is taking place, there is almost always an argument to be made that a country is dumping some product some of the time.

That leaves countries like China with a trigger to pull more or less any time they want.




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This is a similar trick to that used by authoritarian regimes to control their populations. If citizens have essentially always broken some obscure law on the books, they are free from prosecution only by the good grace of the regime in power.

One reading of events is that China is using a version of this tactic in international trade against Australia.

The importance of the WTO

All of this points to the importance of dispute resolution through international bodies.

Sure, anti-dumping cases may be tricky, but resolving such cases quicker would help prevent the threat of such cases being used as bargaining chips.

So, too, would a more precise set of economically based rules about what constitutes dumping in practice, and how to measure it robustly and transparently.

These are matters not only to be determined in free-trade deals between countries but also for international bodies like the WTO.




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It is sometimes suggested there is little to do in this sphere, because trade barriers are now so low.

But making the rules more precise and the dispute resolution procedures more timely is certainly one area for improvement.The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

China used anti-dumping rules against us because what goes around comes around



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Simon Lacey, University of Adelaide

Australia has acted with dismay to China’s decision to impose punitive mostly “anti-dumping” tariffs of 80.5% on imports of Australian barley.

The culmination of an 18-month investigation, China’s move threatens to wipe out Australian barley exports to China, worth A$600 million in 2019, unless China withdraws the measure either unilaterally or following a successful challenge at the World Trade Organisation (WTO).

However poorly justified, there are precedents for what China has done, many of them from Australia.


Australian anti-dumping and countervailing measures by country, March 2020


Anti-Dumping Commission, March 31, 2020

Australia was among the first wave of countries to adopt anti-dumping legislation alongside Canada, New Zealand, the United States and Britain in the early years of the 20th Century.

It remains a prolific user of the system compared to other countries, with an outsized number of measures imposed against imports from one country, China, and imports of one product, steel.

What are anti-dumping measures?

One way to think about anti-dumping measures is the international equivalent of domestic measures intended to combat predatory pricing.

Guidance from the Australian Competition and Consumer Commission says that while it is usually okay to sell goods at a below-cost price, “it may be illegal if it is done for the purpose of eliminating or substantially damaging a competitor”.

But in the case of international anti-dumping measures, there is no need to prove purpose.

It suffices that an investigation finds the imported goods were sold below their corresponding price in the home market and that this caused or threatened to cause harm to a domestic industry producing the same sort of goods (known as “like products”).

Chinese steel, glass, cables and A4 copy paper

Technically, Australia imposes two types of measures: “anti-dumping measures”, which are additional duties on so-called dumped imports which are held to have injured Australian industry, and “countervailing measures” which are additional duties on subsidised imports that have injured Australian industry.

They are currently in place or proposed against Chinese wind towers, glass, electric cables, chemicals, herbicides, A4 copy paper and aluminium products, as well as steel.

In theory, WTO rules only allows anti-dumping measures for limited periods (China’s measures on barley have been imposed for five years) but in practice, once in place these measures can be difficult to remove.

They shield us from cut-throat competition

In the broader context of Australia’s relationship with China, they play an important role, shielding Australian import-competing industries from the full and potentially crushing impact of free trade with China.

One aspect of their use that has been particularly galling to Chinese officials is Australia’s failure to follow through on a commitment it made during the China-Australia Free Trade Agreement negotiations to treat China as a market economy for the purpose of anti-dumping investigations.

The concession was seen as highly significant by China and would have made it harder for Australia to conclude that some goods were not being sold at fair prices.




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Australia’s continued use of anti-dumping measures has come under repeated criticism from the Productivity Commission, almost entirely on the basis of economic efficiency arguments.

However, these criticisms ignore a number of important concerns, including the need to keep these measures so they can be used to hit back against other countries that use them. It would make little sense to remove them until other big users agreed to do the same.




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Another important consideration, which has received greater attention during the current coronavirus crisis, is the need for – systemic resilience. If Australia becomes totally reliant on other countries for (say) steel, it’ll have less ability to get it when it is needed.

Before asking ourselves whether we are prepared to liberalise or do away with our current anti-dumping regime, we need to be able to answer the very important question of whether we are equally prepared to do away with our domestic steel, aluminium, paper and other industries.

I suspect that the answer to this question is no.

There are of course other ways to reinforce these industries or shield them from import competition, but it is more than likely that none would be as effective as the current system of anti-dumping duties. We have kept them because we still have some use for them.




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China might well refuse to take our barley, and there would be little we could do


The Conversation


Simon Lacey, Senior Lecturer in International Trade, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.

China might well refuse to take our barley, and there would be little we could do



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Weihuan Zhou, UNSW

Australia’s surprising call for an investigation into the origin of the coronavirus in China has provoked escalating threats of retaliation by China.

China started with a warning that Australia’s position might spark a Chinese consumer boycott.

It’s now threatening tariffs on Australian barley that would include a “dumping margin” of up to 73.6% and a “subsidy margin” of up to 6.9%.

The subsidy claims are thought to refer to drought support measures and Australia’s diesel fuel tax rebate.




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Together with the dumping tariff (a penalty for allegedly selling barley too cheaply) they would amount to a tariff of 80.5%, effectively putting an end to Australian barley sales to China.

Australia’s exporters and the government have been given ten days to respond.

There’s more to it than barley

A series of decisions and reactions to events that were perceived as anti-China has pushed relations between Australia and China to the verge of a historic low.

Each time, China has urged Australia to reconsider its position and on some occasions has threatened to retaliate.

Recent examples include Australia’s exclusion of Huawei from its 5G network for fear of the influence of the Chinese government on its activities, and the COVID-19 travel ban which singled out China when introduced on February 1 even though by then the virus had spread to other countries.

China targeted barley for good reasons.

Why barley?

China is Australia’s largest market for barley exports.

Between 2015 and 2018, China imported, on average, 4.6 million tonnes or A$1.3 billion of Australian barley accounting for over 70% of Australia’s barley exports.

A tariff increase would have significant impacts on Australia’s barley producers who are scattered over several Australian states, putting considerable political pressure on the Australian government.

China meanwhile has other suppliers from which to choose. It can restrict imports of Australian barley while continuing to buy barley from elsewhere.

And contrary to the claims by Trade Minister Simon Birmingham, the Chinese tariffs are not legally unjustifiable.

The tariffs would be the result of an ongoing anti-dumping investigation into barley exported from Australia that China’s Ministry of Commerce initiated on November 19, 2018.




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It’s time to drop Australia’s protectionist anti-dumping rules


Anti-dumping measures, which seek to prevent lower-priced imports from causing injury to domestic industries, are permitted under the rules of the World Trade Organisation and the China-Australia Free Trade Agreement.

Australia itself has been one of the most frequent users of anti-dumping measures, particularly against China.

The 2015 China-Australia Free Trade Agreement cut Chinese tariffs on Australian barley exports to zero. But it included an exemption: anti-dumping provisions that could increase the tariffs to any rate.

At the start of the 2018 investigation, China’s barley industry requested an anti-dumping tariff of 56.14%. The proposed rate was increased to 73.6% after investigations by Chinese authorities.

That is the investigation that authorities will finalise by May 19, the one started eighteen months ago, on November 19, 2018.




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It began long before COVID-19, motivated among other things by Australia’s enthusiastic use of anti-dumping measures on products such as Chinese steel.

But its timing has made it a useful way to push Australia to change its anti-China position on an inquiry and on other matters in the future.

Since China’s investigation began, Chinese customers have become “very cautious about buying Australian barley” in the assessment of the Canadian barley industry which has benefited by selling Chinese customers barley they once would have sourced from Australia.

The actual imposition of the tariff will hurt more.




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The only legal avenue for Australia to challenge it would be the World Trade Organisation’s dispute settlement mechanism which had been brought to a near halt by the United States refusing to appoint appellant judges and would in any case take years to process without a guaranteed win.

Even if Australia is successful, China may simply begin a reinvestigation which may maintain the original decision.

What’s the best way out?

Australia needs to take actions to ease the tensions and strengthen economic relationship with China.

Abundant evidence has shown that China will remain an irreplaceable Australian customer meaning it would be neither possible nor wise for Australia to decouple from China.

Diplomatic actions, such as the appointment of a special Australian China envoy, will be desirable but not sufficient. Australia has to ensure its future policy decisions are not biased against China.




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To help, Australia could consider a gradual reduction of travel restrictions on China based on China’s success in fighting the virus and renewed more realistic assessment of the potential health risks posed by Chinese travellers.

Australia needs to be cautious in foreign investment decisions which have already been regarded as discriminatory against China before the pandemic.

The pandemic brought forth temporary changes of Australia’s foreign investment rules, making all proposals the subject of Foreign Investment Review Board scrutiny regardless of size.




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While the changes applied to foreign investors from all countries, Australia’s decision to reject two from China has raised concerns about whether the decisions have been compromised by anti-China politics.

Instead of direct rejection, Australia might have been better off offering to approve them under conditions sufficient to address national interest concerns.

Australia should reassess its position on the 5G network to ensure it focuses on risks associated with 5G equipment rather than the nationality of 5G suppliers, as have Britain and the European Union.

These actions would signal a strong political will to repair the relationship that would build the foundation for the two economies to broaden and deepen economic engagement for mutual benefits.The Conversation

Weihuan Zhou, Senior Lecturer and member of Herbert Smith Freehills CIBEL Centre, Faculty of Law, UNSW Sydney, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.