Australia

What is the World Trade Organization? How will it help our trade with China?

abc– After months of deteriorating trade relations and a series of official and unofficial bans on a range of goods, Australia has decided to take China to the independent umpire.

While 2020 has seen a number of commodities come under fire, the referral to the World Trade Organization (WTO) is specifically over tariffs China placed on Australian barley that effectively ended the trade.

Have no idea what this actually means? Here are five quick questions to fill you in:

Why has Australia gone to the WTO?

After World War II, countries around the world, including Australia and China, agreed to a set of trade rules that are now overseen by the WTO.

In May, China announced it was going to punish Australian barley growers with tariffs of 80 per cent after an investigation into claims Australian farmers had engaged in anti-competitive behaviour.

The tariffs apply for five years but have already brought the billion-dollar trade to a halt.

The Federal Government and grain growers both maintain that farmers here have done nothing wrong and as a result, the tariffs are unfair and a breach of the trade agreement known as ChAFTA between Australia and China.

After appeals to the Chinese Government to reconsider the tariffs fell on deaf ears — for months, relevant ministers have been unable even to speak to their Chinese counterparts — the Government is changing course and handing it off to the WTO.

“Essentially, the WTO is a place where member governments try to sort out the trade problems they face with each other,” the organisation says on its website.

Why is this a big deal?

This is the first time since ChAFTA was signed in 2015 that the Government has taken action against China on an agricultural commodity.

Also, appealing to the WTO is generally considered a very last resort — basically, the Government feels it has no other option.

Usually, countries work out their issues behind closed doors, but China has instead revealed its recent trade manoeuvres in the media — something Trade Minister Simon Birmingham described as “unacceptable”.

But it’s not the first time Australia has challenged something in the WTO.

Australia, along with the Brazilian and Guatemalan governments, took India to the WTO in 2018 with a complaint that India had been distorting the global sugar price through subsidies to its cane farmers.

Australian cane farmers pushed the Government to lodge the complaint at the WTO, claiming the Indian export subsidies cost them between $300 and $400 million a year in lost opportunities and income.

That process has been underway for two-and-a-half years, with formal hearings due to begin in a virtual format within weeks.

So, while appeals can drag on for years, the Australian sugar cane industry is optimistic it can secure a decision in its favour in 2021.

What can the WTO actually do?

The WTO acts as a mediator and independent umpire between countries having issues with trade.

It describes its dispute settlement process as making countries focus their attention on the rules they all agreed to.

“Once the judgement has been made, the agreements provide the focus for any further actions that need to be taken.”

The idea is to bring countries to the table to talk, instead of “declaring all out war”.

But the WTO doesn’t have any actual power when it comes to enforcing those rules.

What do exporters think?

It depends on who you ask — even the two major industry bodies representing grain growers have different opinions on the latest move.

The head of Grain Growers, Brett Hosking, is all for proving that Australian farmers haven’t done anything wrong.

“We’ve been accused of acting outside of the rules,” he said.

But he admits some stakeholders were nervous the WTO action could worsen the relationship with China or lead to more tariffs on other agriculture exports.

One of those people is Grain Producers Australia chief Andrew Weidemann, who likened taking China to the WTO to giving our most valuable customer “a punch on the nose”.

Meanwhile, the National Farmers’ Federation (NFF) has said it would back the Government’s decision to go to the WTO.

“Absolutely, we depend on playing by the rules, we have to support that,” NFF president Fiona Simon said.

That said, the NFF and many exporters also want the Government to keep looking into new markets for other options if the problems with China persist.

What about all the other trade sanctions?

The outcome for barley could set a precedent for potential challenges against tariffs and other unofficial bans China has imposed on a range of sectors.

These include:

  • Beef and lamb
  • Wine
  • Cotton
  • Lobsters
  • Timber
  • Coal

China imposed interim tariffs on Australian wine following a similar investigation into anti-dumping and allegations producers were selling wine for below the cost of production.

But the issue with many of China’s actions towards Australian goods is they have been subject to a kind of unofficial sanction.

Take lobsters, for example — tonnes were left to die on the tarmac in China after customs delayed quarantine inspections.

While not a tariff or official sanction, the move left many Australian fishers — and exporters of other goods — feeling nervous about the underlying motives behind the delays.

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