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China playing by the WTO rules

news.cgtn.com by Daryl Guppy07/09/2020  

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Editor's note: Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for Chinese mainland media for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a national board member of the Australia China Business Council. The article reflects the author's opinion, and not necessarily the views of CGTN.

Australians are outraged or resolutely unmoved by the series of World Trade Organization (WTO) and quarantine actions announced by China in the past few weeks. The more hot-headed commentators cast these moves as a threat to Australia's sovereignty. The more level-headed of those involved in trade decisions are determined to treat each as a separate event.

China has referred Australia to the WTO to investigate the dumping of Australian barley on the Chinese market. This was followed by the suspension of export licenses for several abattoirs. Most recently, China referred the potential dumping of red wine on the Chinese market and asked for an investigation into allegations of industry subsidies.

This triple whammy comes at a time when Australia-China relations are the worst they have been in decades.

It is useful to drill a little deeper to assess the context and environment of these actions by China. Australia's response is often shrill, and not always justified.

China's actions against Australia need to be compared to China's measures taken against other countries in the WTO. China has 33 actions against the U.S., 31 against Japan and 24 against the EU. Thailand and Singapore both had seven actions in place against them.

Australia has 43 anti-dumping investigations or other actions underway against Chinese products, and 17 measures already in place. Australia is a prolific user of anti-dumping measures, undermining Australia's free trade credentials. Australia's anti-dumping regime is subject to growing scrutiny, both internationally and domestically.

China has particular grievances about Australia's anti-dumping system. One of its conditions for entering into the China-Australia Free Trade Agreement was that Australia would treat China as a market economy. But to China's disadvantage, Australia has continued to treat China as a non-market economy for the purposes of applying specific anti-dumping duties.

The wine anti-dumping actions are largely driven by domestic interests with increased complaints from domestic players reflecting the desire of Chinese wine makers to keep out foreign competitors and not just Australia. Overseas suppliers have been eroding the market share of domestic producers since 2008 with imports growing from 20 percent share of the market to 54 percent in 2018. It's no wonder Chinese wine producers are upset.

There is some merit in the investigation into wine industry subsidies. Specific Australian State and Federal programs are available to assist wine exporters and are found with a simple Google search. Is this a subsidy? It's a gray area but it's also a practice that Australia has complained about to the WTO in relation to other countries.

Chinese tariffs on Australian barley followed a more than 12-month investigation by China with a decision deadline falling in mid-May 2020. The suspension of four beef export licensees also followed more than 12 months of complaints about persistent incorrect labeling of Australian export beef. 

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The abattoirs at the center of these bans have been described by some Australian trade officials as serial offenders. Complaints about excessive weed contamination in grain shipments were first raised in December 2019, well before the COVID-19 pandemic.

On balance, the number of WTO referrals made by China against Australia is very small. In a COVID-19 environment it is understandable that the industry will feel threatened by imports, dumped or not, so we can expect greater use of WTO dumping processes by all parties. And it's that observation which encourages us to drill even deeper into this situation.

Discomforting as China's tariff investigations may be, we should not ignore the way China has chosen to stay inside the global rules-based trade order and use this to resolve trade issues. Some Western countries are happy to demand that China observe the global rules-based order but still complain when it happens.

Credit should be given where credit is due. China is using the WTO processes and there is every expectation that China will abide by the decisions.

In contrast, the United States constantly ignores the global rules-based order and actively sabotages the institutions of that order. President Trump prefers to use a tweet-based unilateral process to impose tariffs, sanctions and interfere with global business.

Australia has found it is impotent when trying to counter Trump's preference to use trade to attack friend and foe alike simply because he ignores the global rules-based order. It should be a relief to deal with a country which does follow that trade order.

The trade enquiries are troublesome but consistent with international best practice followed by Australia.

Although some cast this as a threat to Australian sovereignty, it is really just part of the normal argy-bargy of trade relations under the auspices of that order. There is never a good time for these types of trade disagreements, so it's difficult to substantiate the claim that they are solely motivated by a desire to punish Australia.

The most important aspect of these investigations is China's willingness to play by the rules, and unlike tweeted sanctions, there are well defined avenues of assessment and appeal. For that Australia ought to be grateful.