Explained: Why is China imposing tariffs on Australian wine and barley?

The Australian government says it may take China to the World Trade Organisation (WTO) over a barley tariff dispute, just days after China imposed tariffs of over 200% on Australian wine imports.

But how significant are the new tariffs? And will a WTO appeal help the Australian exporters who rely on Chinese markets?

SmartCompany asked two industry analysts these questions.

Aussie barley exports

In May, China imposed tariffs of 80.5% on Australian barley exports, which were made up of a 73.6% anti-dumping duty and a 6.9% countervailing duty.

Dumping is when goods are sold below a normal value — for example, below the cost it takes to produce them — which gives producers an advantage over the foreign markets they sell to.

Countervailing is a duty that governments impose on the goods and services they import from foreign countries to protect their own domestic suppliers from competition.

On Sunday, Trade Minister Simon Birmingham announced that after unsuccessful attempts to appeal the tariffs through China’s domestic process, the next step is for the federal government to take its appeal to the WTO.

According to IBISWorld senior analyst Will Chapman, an appeal to the WTO, an international organisation that deals with trading disputes between nations, involves two key problems.

“A WTO appeal is unlikely to have any effect over the short term,” Chapman tells SmartCompany.

An appeal would take a significant amount of time, leaving little benefit for Australian barley producers who export to China in the short term.

Chapman says the second problem is that even if Australia manages to appeal barley tariffs through the WTO’s dispute process, China would not be punished or pay any redress. The WTO could only order China to bring its trading policies in line with WTO rules.

“These tariffs are not anticipated to have a significant impact on Australian barley production over the short term, as Australian barley will likely find alternative markets outside of China,” Chapman says.

Aussie wine exports

From November 28, China announced it will impose tariffs on Australian wine imports ranging from 107% to 212%.

Australian wine producers should definitely be looking to diversify their supply chains given China accounts for 36.7% of wine export revenue in Australia, says IBISWorld senior analyst Matthew Reeves, who specialises in the wine industry.

“At this stage, we do not know how long these tariffs will last, but if they remain at this level, it will be prohibitive for many if not all importers in China,” Reeves tells SmartCompany.

Reeves says Canada is a good alternative market to China because it recently removed trade barriers, making Australian wine more accessible to Canadian consumers.

Based on the new tariffs and the assumption that some exports will be diverted to other markets, Reeves forecasts wine exports to China will fall by a total of 22% over the financial year to June 2021.

“This translates to an overall decline of 8.7% for the wine production industry,” Reeves says.

Why is China imposing tariffs?

When it comes to wine, China has clearly indicated the tariffs are anti-dumping measures which are linked to a dumping investigation that is underway.

According to Reeves, WTO rules allow member nations to impose tariffs on countries under investigation.

“However, if these tariffs have been initiated by China for non-trade reasons, then they are in breach of the rules,” Reeves says.

In mid-November, Chinese officials gave 9News a list of reasons why China is not happy with the Australian government.

“If you make China the enemy, China will be the enemy,” the document stated, according to 9News.

Among the list of grievances are Australia’s decision to ban Huawei from the rollout of 5G, and the federal government’s calls for an investigation into the origins of COVID-19.

Chapman says, given Chinese officials disclosed the list of 14 grievances, it is unlikely that tariffs will change until the Chinese government feels those issues have been resolved.

“The recent spate of tariffs on Australian products indicate that the Chinese government intends to continue using trade as leverage to extract political concessions from the Australian government,” Chapman says.