It could be years before a fix to Australia’s deteriorating trade fight with China, with warnings that escalating coal and agriculture bans to the World Trade Organisation could be a drawn-out and perhaps ineffective process.
Trade Minister Simon Birmingham said the federal government would take China’s restrictions on Australian barley to the WTO, and the coal and wine fight may follow suit.
But trade experts say that will be no quick fix.
“It can take years. A lot of damage can be done in that time,” Roland Rajah, lead economist at the Lowy Institute, told The New Daily.
“China might comply but it takes a long time, so they might have already achieved their objectives by that point.”
What power does the WTO have?
The WTO, based in Switzerland, is a global body designed to enforce the rules of international trade. That means issues around free trade agreements, sanctions, tariffs, and ensuring one country isn’t unfairly pressuring others.
It has more than 160 member nations, representing 98 per cent of global trade.
It also hosts a dispute resolution process, for issues between nations. Mr Rajah said it functioned like a court, with appellants lodging cases to a panel that hears evidence before issuing a ruling. The WTO can order a country to remove trade barriers, or allow the aggrieved party to slap up its own sanctions against another nation in retaliation.
“But it’s not as powerful as people would think or would like,” Mr Rajah said.
“It actually can’t enforce any rulings on a member. It’s just the commitment of a member to honour the rulings.”
Prime Minister Scott Morrison claimed the reported coal ban would “would obviously be in breach of WTO rules”.
What other WTO roadblocks exist?
Dr Giovanni Di Lieto, a Melbourne-based international trade consultant and fellow at the University of Bologna, said the WTO’s structure might delay any resolution even longer.
An original WTO decision can be appealed to an appellate body. However, US President Donald Trump has refused to appoint new members to the panel, meaning any appeals process lodged by Australia or China could take years.
“There’s a big backlog in the WTO system. It’s jammed,” Dr Di Lieto told TND.
“The appellate body is now not functioning because there’s not enough judges.”
He suggested President-elect Joe Biden would look to appoint new appellate members. But that would require the Democrats to win control of the Senate, which will come down to two run-off races in Georgia in January.
Would China follow a WTO order?
Mr Rajah said China had historically abided by WTO rulings, but it was unclear whether it would follow any decision around Australia, considering the – in the words of Senator Birmingham – “discriminatory” actions it has already levelled against our products.
The Trade Minister was asked about this scenario on 2GB radio on Tuesday, saying Australia might apply “our own tariffs or sanctions” on China if it ignored a WTO ruling.
But federal government sources told TND that winning the right to slap our own trade punishments on China was not the goal of appealing to the WTO.
Instead, the government simply hopes the WTO will order a reversal of China’s restrictions. The government claims China has unfairly “singled out” Australia for trade sanctions.
Is the WTO likely to rule against China?
But Mr Rajah said many of China’s trade restrictions operated in a “grey zone”, which would not be easy for the WTO to rule on. For instance, shipments of timber and barley were halted over claims of insect infestation, while beef exports hit issues around labelling and hygiene.
“Often people complain that trying to discipline China via the WTO is like a game of Whac-A-Mole. China does something, people complain, China might stop that particular thing but then start doing something else similar,” Mr Rajah said.
“Even if we can take a case on barley to the WTO, and we get a resolution, does that resolve the wider situation? Probably not.”
Senator Birmingham admitted the particular details of Chinese actions on some Australian products “makes it challenging to be able to take it up” to the WTO.
Dr Di Lieto didn’t expect much success from Australian appeals to the WTO.
“I’m not saying Australia shouldn’t go to the WTO. They have to. If Australia didn’t, it would show an extreme political weakness,” he said.
“But the way China is doing it, they raise some very technical, specific, small irregularities. They say it doesn’t meet requirements on fumigation or containers.
“It’s incredibly easy if they want to bully you or stop your stuff.”
What does Australia do next?
Senator Birmingham said Australia’s case on barley was nearly ready to be submitted to the WTO for review. TND understands the tariffs on wine may also be escalated to the WTO, while the government is awaiting official confirmation of the coal ban.
The Trade Minister also advised Aussies to settle in for the long haul.
“It can be a long process and so we shouldn’t expect that’s going to provide any solutions quickly in terms of the next couple of months,” he told 2GB.
“It is more likely to take a couple of years to work through those sorts of processes.”
Is there any upside for Australia?
Not really. The government is looking at new markets for affected products, with talk about boosting coal exports to India.
“Our coal exports have a diverse customer base,” Mr Morrison said Tuesday.
Labor’s shadow resources minister, Ed Husic, said the government should do more to help affected producers, suggesting Vietnam and Bangladesh as other possible coal markets.
But Dr Di Lieto said global markets for selling coal were shrinking.
“Even conservative governments around the world are going to net zero emissions and transitioning away from coal,” he said.
“That would be tricky by itself for Australia, even without the China issue. Now Indonesia is selling more coal. I don’t see much call for replacement markets for our coal. I see it being quite tough.”