China slaps tariffs on Australian wine as trade tensions worsen

Beijing will impose anti-dumping duties on Australian wine imports from Saturday amid a deepening diplomatic and trade row between the countries.

China’s Ministry of Commerce said on Friday it would impose anti-dumping tariffs of between 107 and 212 per cent on Australian wine — a level producers warn will decimate annual trade worth A$1.2bn ($884m) in its largest overseas market.

The measures are the latest in a wave of sanctions and come as 82 ships transporting Australian coal remain marooned off China’s coast, according to a person with direct knowledge of the situation.

Barley, beef and seafood have already been targeted by Chinese authorities, which last week detailed 14 grievances with Canberra that it claims explain the sharp deterioration in bilateral relations.

The duties on wine follow a preliminary investigation by Chinese authorities after domestic winemakers complained that Australian producers flooded the local market with cheap wine between 2015 to 2019. Australian exports increased from 5.7m litres to 12.1m litres per year over the period.

A$800m Value of Australian coal in ships stranded of the coast of China

Simon Birmingham, Australia’s trade minister, said Beijing’s investigation was “erroneous in fact and in substance” and gave rise to the perception China was targeting the country over political matters. 

Mr Birmingham added that the decision “is completely incompatible with the commitments that China has given through the China-Australia Free Trade Agreement and through the World Trade Organization. It’s incompatible with a rules-based trading system.”

Canberra has previously warned it may seek redress at the WTO.

Tony Battaglene, chief executive of Australia Grape & Wine, an industry group, said the tariffs threatened to close the Chinese market to Australian producers.

“We can’t see any evidence in the submissions to this investigation that suggest we have a case to answer and if there isn’t a technical justification then it must be something else,” he replied, when asked if he thought the sanctions were politically motivated.

China is Australia’s largest trade partner, with two-way trade worth A$252bn last year. But over the past two years, relations have soured as Canberra pushed back against Beijing’s more aggressive foreign policy under Xi Jinping, the Chinese president.

A memo leaked to Australian media last week by a Chinese diplomat cited Canberra’s ban on Huawei’s participation in building the country’s 5G network and “disinformation” about China’s handling of coronavirus as among the reasons for the deterioration in relations.

Scott Morrison, Australia’s prime minister, praised China this week for lifting its citizens “out of poverty” in remarks interpreted as an attempt to mend ties.

China’s trade sanctions against Australia had focused mainly on agriculture products, a politically sensitive sector for Mr Morrison’s conservative government due to the lobbying power of farmers. But analysts warn the risks are growing for bulk commodities, particularly coal.

Ships containing about A$800m worth of Australian coal have been prevented from docking, due to what China says are concerns over “environmental standards”. Australia’s monthly coal exports to china fell to 390,000 tonnes in November, down from an average of 7.9m tonnes in the period between January and August.

The halt of Australian coal imports is making things difficult for Chinese steel manufacturers and other end users. They face supply shortages and rising prices domestically and in Mongolia, the quickest alternative source of coal, S&P Global Platts said in a research note. 

Citi has forecast a 10 per cent fall in total Australian exports to China over the next 12 months. Under a worst-case scenario, restrictions would be extended to Australian iron ore, leading to a 50 per cent reduction in total exports. Under that scenario, Australia would suffer a 3.8 per cent drop in nominal GDP.

“Our modelling suggests that there would be an undeniable hit to the Australian dollar, export earnings, income and growth under a worst-case scenario which includes restrictions on iron-ore,” Citi said in a report.

However, most analysts believe China is unlikely to target Australian iron ore because there are few alternative sources in the short term.

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