Caution over linking Chinese trade measures to Australia’s stance on a COVID-19 investigation

Caution over linking Chinese trade measures to Australia’s stance on a COVID-19 investigation

In recent days, China has announced trade restrictive measures in respect of Australian agricultural exports.  Many are linking the measures to Australia being one of the first and most vocal countries calling for a probe into the Chinese Government’s handling of the Corona Virus outbreak.  However, it is important not to jump to conclusions and ignore the underlying issues that existed before the COVID-19 crisis took hold.

What are the restrictions?

Dumping duties

The first trade restriction foreshadowed dumping and countervailing duties on Australia exports of barley.  The proposed duties are about 80% and could not be avoided by the China Australian Free Trade Agreement.

The proposed duties follow a dumping investigation that commenced in November 2018.  Dumping duties are imposed where the sale price of a product in the country of manufacture is higher than the sale price in the export.  Countervailing duties address Government assistance to exporters.

China has alleged that Government assistance such as the diesel fuel rebate and drought relief should be subject to countervailing duties.

Restrictions on meat exports

As a separate issue, China has placed a temporary suspension on meat exports from certain Australian exporters due to alleged breaches of China’s quarantine and labelling requirements.

Link to Australian political actions

Many have been quick to link the above restrictions to political tensions related to COVID-19.  Clearly China will not admit to any such link.  Rather, the measures taken by China are objectively reasonable and permitted under WTO law if its allegations of dumping/regulatory non-compliance are proven.

There are some difficulties with the theory that the measures are politically motivated.  First, the dumping duties are being imposed as a result of an investigation commenced in November 2018.  Such investigations often take over a year before preliminary findings are made.

In regards to meat exports, only certain exporters have been targeted.  Australia’s largest meat exporter was not subject to the measures.  Further, temporary restrictions while a quarantine issue is being addressed is far from unprecedented.

Lastly, Australia is only one of a number of countries calling for an investigation in China’s handling of COVID-19.  No other country has been subject to Chinese trade measures.  If trade measures were China’s attempts to silence countries calling for an investigation, it would be reasonable to suspect that such measures would not be limited to Australia.  Australia has a relatively minor global voice.  Seeking to silence only Australia, would seem to be a very ineffective strategy.

Blaming political tensions ignores the underlying issues

While the media may enjoy inflaming trade tensions between Australia and China, it is important not to ignore the objective reasons allowing China to impose trade restrictions.

For over 10 years Australia has been an aggressive user of anti-dumping measures against Chinese exports.  In December 2019, in a case brought by Indonesia, the WTO ruled that certain approaches adopted by the Australian Anti-Dumping Commission breached WTO law.  These same approaches had been adopted in respect of investigations into certain Chinese exports.

In response to this WTO finding, Australia did not undertake a review into past investigations into Chinese products.

Given Australia is an aggressive user of the anti-dumping system and has been found to have conducted an investigation outside of WTO law, we should not be shocked when other countries use the anti-dumping system against Australia.

Similarly, Australia has repeatedly investigated whether electricity subsidies have been given to Chinese exporters.  There doesn’t seem to be any sound reason why Australia fuel tax credits should be treated any differently.

Australia has used its anti-dumping system in a protectionist manner for many years.  The easy response to the Chinese barley finding is to blame current political tensions.  An approach that may have greater long term benefits is to examine whether Australia’s own use of protective trade measures is in the best interests of the economy.

Similar questions should be asked in respect of the alleged breaches of China’s quarantine and labelling requirements.  Few countries are stricter than Australia when it comes to quarantine measures.  While a significant trade barrier, most would agree that this is legitimate and necessary measure.  However, it is equally appropriate for other countries to impose strict quarantine and labelling requirements.

If it is found that Australian exporters were non-compliant with Chinese quarantine and labelling laws, it should be investigated whether Australia’s level of export compliance is sufficient.  The reported error rate on export declarations in 2018/19 was 40%.  Those figures jumped to 60% for the September 2019 quarter.  Given such high error rates, it is surprising that when China identifies non-compliance, the first response is to say such claims are political.

These findings point to a bigger and broader export compliance issue.  The Australian Government needs to focus on non-compliant exporters who can constitute a risk to all complaint trade.   The Australian Government has noted that the alleged quarantine and labelling breaches are “technical”.  From experience, the Australian Border Force does not excuse non-compliance on the ground that the breach is “technical”.

Rather than speculating as to whether China’s current actions are politically motivated, the better question to ask is whether its actions are compliant with WTO law.  If there is an objective basis for China’s actions (even if “technical”), the Chinese Government is entitled to exercise its discretion in electing what response to take.  If Australia wants to influence the exercise of Chinese discretion, it needs to firstly look at how it exercises its same discretion in respect to Chinese imports.  Secondly, it should limit the opportunities for legitimate trade restrictions by ensuring high levels of export trade compliance.