An update on the Australian trade agenda with China

A version of this article was first published by The DCN in May 2024.

The relationship between Australia and China is a complex one, with the two countries having maintained common interests in trade.

The trade relationship between Australia and China has consumed the attention of politicians, economists, importers, exporters and their service providers (such as lawyers) for some time. For the last few years, the relationship had struggled as China placed bans on certain Australian exports and imposed dumping and countervailing duties on Australian exports while Australia continued to apply anti-dumping and countervailing duty on a variety of Chinese exports, predominantly in terms of steel and aluminium products.

These trade disputes seemed to reflect wider tensions surrounding the countries’ commercial and political relationships which spilled into other areas such as concerns on biosecurity and defence issues. Clearly, the relationship with China is vital to both Australia itself and the commercial and defence alliances to which Australia is a party with other countries.

Chinese bans and disputes reaching the World Trade Organization

Following a change in the Australian federal government in 2022, the political relationship between the two countries seems to have improved. Bans on imports of Australian coal and timber were lifted during 2023.

Dumping and countervailing measures imposed on Australian barley were removed in August 2023 after China reviewed the need for the measures. Australian action at the World Trade Organization (WTO) regarding those measures was then withdrawn.

Following a review into the dumping duties imposed on Australian wine exports, China removed its dumping and countervailing duties on Australian exports with effect from 29 March 2024. On 3 April 2024, Australia and China jointly notified the panel and the Dispute Settlement Body of the WTO that the parties had reached a mutually agreed solution to the matter. On 19 April 2024, the WTO panel circulated a brief report identifying the dispute and recording that the parties had reached an agreement to resolve it.

China initiated proceedings at the WTO against Australia in June 2021 concerning anti-dumping duties on wind towers, stainless steel sinks and railway wheels exported from China to Australia. These proceedings were initiated two days after Australia initiated its own proceedings against China at the WTO regarding the imposition of dumping and countervailing duties on Australia wine exports.

The dispute regarding the imposition of duties on wind towers, stainless steel sinks and railway wheels proceeded for several years in accordance with the procedure set by the WTO Dispute Settlement Body before the panel for the dispute was circulated on 26 March 2024. By way of summary, the WTO panel found that Australia’s Anti-Dumping Commission (ADC) had not given an ‘adequate and reasonable explanation’ for its decision to increase its estimates of the Chinese producers’ costs of making the steel goods.

The calculation of such costs is often an issue in dumping investigations as it involves the ADC estimating producers’ costs as part of the ‘normal value’ of the goods. The higher the normal value, the greater the likelihood that the ‘export price’ calculated on Australian exports would be lower than the normal value, leading to a finding that dumping had taken place with dumping duties being imposed if such dumping caused ‘material injury’ to the Australian industry producing the same goods.

However, China failed in securing a finding that countervailing duties were payable on the goods (which Australia had previously removed).

Australia did not seek review of the panel findings by the new Multi-Party Interim Appeal Arbitration arrangement and there have been subsequent comments by the Australian trade minister to the effect that it was only a ‘technical’ finding against the Australian regime and that the Australian regime was otherwise transparent and compliant with WTO obligations. The ADC will now work with importers of these goods who may have paid dumping duties at a higher rate than should have been the case. It is interesting that these WTO proceedings could not be included in the other settlements of matters in the WTO between Australia and China.

Australian imposition of dumping and countervailing duties on other Chinese exports

In addition to the developments described above, Australia has also recently removed a 10.9% tariff on Chinese wind turbines. Over and above the reduction or removal of measures, Australia retains anti-dumping and countervailing duties on a number of Chinese exports and, in a number of cases, the continuation of those measures is currently being removed.

Other international measures on Chinese exports

Many other countries have imposed dumping and countervailing duties on Chinese exports of steel, aluminium and other products. In addition, the United States imposed duties on certain Chinese exports in accordance with section 301 of the United States’ Trade Act of 1974. Section 301 authorises the United States President to take all appropriate action, not only tariff-based but also non-tariff-based retaliation, to address any unfair act, policy or practice of a foreign government burdening United States commerce. In deciding whether to take such action, the United States Trade Representative (USTR) section 301 divides such actions into mandatory and discretionary categories. Mandatory action is required if the USTR concludes that there is a trade agreement violation or that an act, policy or practice of a foreign government is ‘unjustifiable’ and ‘burdens or restricts’ United States commerce.

However, in a new development on 22 April 2023, the United States announced that there would be a new ‘section 301 investigation’ by the USTR into China’s practices on maritime, logistics and the shipbuilding sector. This is entirely different to an investigation by the United States Federal Maritime Commission. It will be based on submissions by original petitioners to the USTR (five labour unions) seeking the imposition of measures to address perceived adverse consequences to the actions taken by China along with any other measures which the USTR and the president considers appropriate.

The actions to which the petitioners objected were actions having taken place as far back as 2001 which afforded unfair advantages to the Chinese maritime and logistics sector. The remedies sought by the petitioners included:

• a fee on vessels built in China which docked at United States ports with the proceeds to establish a ‘shipbuilding revitalisation fund’;
• actions to support more demand for US-built vessels;
• actions to address China’s conduct to dominate the industry; and
• negotiations with other major shipbuilding countries to address concerns on their own industries caused by China’s actions which have allegedly led to the adverse outcomes they have identified.

The progress of the USTR investigation and the outcomes of the that investigation will be of real interest to others in the supply chain. For Australia, it may raise some concerns in the context of the current initiative around the creation of an Australian Maritime Strategic Fleet of 12 privately-owned and commercially operated Australian flagged and crewed vessels.

While 12 vessels may not be seen as a challenge to United States maritime, shipping and logistics interests, those working on the strategic fleet would need to be aware of the potential interest by United States and other private sector interests elsewhere in the world and undertake initial steps to secure approval by those interests.

How does the relationship proceed from here?

Notwithstanding the disputes described above, China and Australia have maintained common interests in trade between the two countries. The China-Australia Free Trade Agreement (ChAFTA) is still used extensively to enhance trade between the countries and trade continued through all the competing national interests which could have stopped or severely damaged trade.

In the absence of possible conflict or other fundamental interruption to trade between the countries, trade (like nature) will always find a way. That said, the character of that trade may change as Australian companies do not want to ‘overexpose’ themselves to the Chinese economy and are already looking to spread their trade to other countries. Further, even with ChAFTA being in place, dumping and countervailing actions will still loom large to impact trade, especially as countries encourage the revival of domestic manufacturing industry whose interests have been traditionally assisted by dumping and countervailing actions and direct government support. There will always be the need for services providers to the supply chain, even including customs and trade lawyers.

There is the traditional curse of ‘May you live in interesting times’. We continue to hope that national governments can find adequate common interests to ensure that our times are not ‘interesting’ in that context but are interesting in a wider and more amicable and profitable manner.

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If you are an individual or Australian business and would like to discuss any current trade or supply chain issues your business is facing, please contact a member of our Customs & Trade team.