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Trade

China plays hardball on trade as Australia tensions escalate

Beijing punishes Canberra with tariffs and bans for COVID-19 inquiry push

SYDNEY -- One-hundred thousand Australian dollars ($70,000).

That's how much Robert Miolini, a farmer in the Wheatbelt region in the state of Western Australia, lost in future earnings when China announced plans to impose a crippling 80 percent five-year tariff on Australian barley last month, citing anti-dumping allegations.

The owner of a neighboring farm who has planted 200 times as much of the crop could end up losing the property after the aggressive actions by China, which last year bought nine-tenths of the barley grown in the Wheatbelt, a region the size of Bangladesh that surrounds the state capital Perth.

"I can't believe they think the (Australian) government is subsidizing barley," Miolini told the Nikkei Asian Review.

Rhys Turton, president of the West Australian Farmers Association, denounced China's claims as "an absolute joke," saying categorically that "farmers in Australia don't get subsidies on anything."

The real reason behind the tariff, they say, is Chinese anger over Australia's push for an independent international inquiry into how the coronavirus pandemic, which originated in the Chinese city of Wuhan, was initially handled.

Since then, Beijing has also slapped tariffs and import bans on Australian beef and warned its citizens against traveling to the country, citing incidents of alleged discrimination against Asians.

Cheng Jingye, China's ambassador to Canberra, warned in April that Australia's push for a COVID-19 inquiry could spark a Chinese consumer boycott of students and tourists visiting Australia, as well as sales of popular agricultural exports like beef and wine.

China is Australia's largest trade partner, accounting for 26% of its exchange with the world, with Australian exports to China valued at a record AU$153 billion last year.

Another sign of the worsening bilateral relationship was China's announcement over the weekend that Australian man Cam Gillespie, arrested seven years ago on charges of drug trafficking in southern China, had been sentenced to death.

Wary of the need to balance support from an electorate that steadfastly rejects any kind of economic coercion and its inescapable dependence on trade with China, Australian government ministers have been walking on eggshells.

Trade minister Simon Birmingham said he could "understand why people draw a link" between China's actions and Australia's "calls for a COVID-19 investigation," while Foreign Minister Marise Payne only described China's response as "inappropriate."

China, however, has shown no such restraint, forcefully escalating its rhetoric.

Last week, the country's Ministry of Education issued a warning about studying in Australia, citing a marginal increase in racist incidents against Asians, some accused of spreading COVID-19.

The move followed a similar warning from the Ministry of Culture and Tourism that its citizens should not travel to Australia for the same reason.

International education is Australia's third-biggest export, with Chinese students worth AU$12 billion to the Australian economy last year. But with Australia's borders now closed to foreign citizens to prevent a second wave of COVID-19 infections, China's warnings will have no real effect.

A ban on exports from four large Australian abattoirs over allegations of improper food labeling made by China only a few days after the barley tariff has already found its mark, canceling out AU$200 million a month in trade and placing thousands of Australian jobs on the line.

John Seccombe, chairman of the Northern Rivers Meat Cooperative, one of the four abattoirs banned, said the sanctions had shrunk his business by nearly a third overnight.

"China was buying 20% to 30% of our products at a good price," said Seccombe. "So being locked out of that market is significant."

Despite the hit to his business, Seccombe refused to join a growing chorus accusing China of trying to coerce Australia over the COVID-19 probe. "We are aware of those assertions but we do not share them," he said.

"As far as we are concerned this is a technical issue about labeling that goes back six to 12 months," he said. "We should have moved faster and put corrective action in place before this happened."

Warwick Powell, an adjunct professor in economics at the Queensland University of Technology in Brisbane, believes China's grievances are legitimate.

"The idea that a buyer has the right to exercise choice is not unusual," said Powell. "And strangely enough, you have to meet their requirements if you want to sell to them."

Powell, who is also the founder of BeefLedger, a blockchain product that allows consumers in foreign countries to confirm the origin of any piece of meat that claims to be produced in Australia, says concerns over food safety in China have been amplified by COVID-19.

Nor is this the first time China has raised concerns over labeling for those specific abattoirs, Powell added. In July 2017, Northern Rivers Meat Cooperative was among six Australian meat processors temporarily suspended by China over labeling problems.

JBS, Australia's largest abattoir, also appeared on both lists. "An Irish abattoir was also recently temporarily suspended for the same reason," Powell said.

According to him, the barley tariff was also a coincidence.

"It's an entirely different set of issues that have been bubbling along for a long time and the deadline was coming up anyway," Powell said.

That's a point that even Miolini, the West Australian barely farmer, is prepared to concede.

"We had this threat hanging over us for 18 months and I think a lot of farmers built the threat into the price," he said.

But American economist and author Dr. Anthony Graceffo says Chinese trade policies are rarely black and white.

"You can easily make the case that there are a number of legitimate reasons why China complained and why its complaints are justified," Graceffo said.

"But China has a history of using selective enforcement of trade rules when it gets angry," he said. "The Soviet Union used to do the same thing but China is more clever in that they look for real problems and then exploit them. I 100% believe that is exactly what China is doing now."

While Australia has signaled that it will take the matter to the World Trade Organization's Dispute Settlement process, Graceffo sees that as a waste of time.

"China is masterful at picking up on trade issues it knows it will win," he said. "Even if it loses, the WTO has very weak powers of enforcement and the deadlines they give for compliance are ridiculous -- up to three years long."

Still, while Chinese consumers can survive without Australia's T-bone steaks, China's steel-makers cannot go without Australian iron ore, which accounts for two-thirds of its imports.

"Placing restrictions on Australian iron ore imports would hurt domestic steel producers just as the Chinese government is directing stimulus money into construction and infrastructure," Gavin Thompson, vice-chair of Wood Mackenzie Asia Pacific, a Singapore based energy consultancy, wrote in a blog.

Thompson also notes Chinese industry is also deeply dependent on Australian natural gas and -- to a slightly lesser extent -- on Australian coal, and importing much more of these resources than it was before COVID-19.

"All relationships go through their bad patches but both sides would likely be worse off if the current diplomatic spat were to escalate further. Now is the time for cool heads, dialogue and pragmatism to prevail," Thompson wrote in a blog.

Back in the Wheatbelt, barley farmer Miolini is also pragmatic.

"From drought, to flood, to fire, to falling commodity prices, we can band together as a community and find a way through it," he says. "And who knows what will happen between now and harvest in November?"

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