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How the Wine Industry Got Ensnared in Australia-China Tensions

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How the Wine Industry Got Ensnared in Australia-China Tensions

Australia is seeking arbitration at the WTO over Chinese tariffs on Australian wine.

How the Wine Industry Got Ensnared in Australia-China Tensions
Credit: Depositphotos

Australian Trade Minister Dan Tehan stated last week that the government called in the World Trade Organization to help arbitrate China’s decision to impose tariffs of more than 200 percent on Australian wine. “We would love to be able to sit down [with China’s government] and be able to resolve these disputes. While we’re not in a position to do so, we will use every other mechanism to try and resolve this dispute and other disputes that we have with the Chinese government,” Tehan said.

Australian wine is one of the country’s largest agricultural exports. In 2019-2020, Australia exported 729 million liters of wine, valued at $2.8 billion. Mainland China was the top destination for Australian wine, accounting for nearly 40 percent of exports. After China imposed hefty anti-dumping measures last November, Australian wine exports to the Chinese market plummeted from $1.1 billion to $20 million.

The Chinese wine market only accounts for 4 to 5 percent of the country’s alcoholic beverage consumption but it continues to show promising growth, both with rising imports from abroad and with the development of Chinese production, sometimes backed by investment from Australian and French winemakers. With the blow to Australian wine imports, China could look to other foreign markets, including Chile or Italy, as well as bolster domestic brands, to fill the gap left in the wake of a medium- to long-term exit by Australian winemakers. In March, Beijing said the tariffs on Australian wine would last for five years.

Last week’s appeal to the WTO is Australia’s second to the trade body targeting China in six months. Former Trade Minister Simon Birmingham referred China to the trade body in December 2020 over other tariffs that have hit bilateral barley trade. Australian wine and barley are not the only industries to be suffering of late; the beef, lobster, and timber sectors have also been caught in the crosshairs of trade and political tensions between Beijing and Canberra.

China’s entry into the WTO two decades ago was heralded as the seeds for market reforms and trade liberalization in the country. Although the knock-on effects of its membership in the WTO have been more nuanced than a black-and-white verdict of success or failure, China has stuck to commitments to participate in the entity’s dispute settlement mechanism. Between China’s accession to the WTO in 2001 and 2019, it has been involved in 65 disputes with nine other members at the WTO: 21 times as a complainant and 44 times as a respondent.

Still, there is a general belief that Chinese trade violations have been under-enforced, likely because foreign investors prefer to sustain gains from the large Chinese market than incur costs or provoke retaliation by Chinese authorities. “If we use a country’s share of global trade as a predictor for the number of disputes it faces at the WTO as respondent, then China is definitely under-represented,” wrote Petros C. Mavroidi and André Sapir at VoxEU CEPRA, a source of research-based policy analysis and commentary from economists.

Currently, China has outstanding cases against the European Union (five), Greece, Italy, and the United States (16), while China is the respondent in cases filed by Australia, Brazil, Canada (four), the European Union (nine), Guatemala, Japan (three), Mexico (four), and the United States (23). Traditionally, cases against China have targeted government efforts to back and subsidize its manufacturing and high-tech sectors, but this latest filing by Australia targets the imposition of what it views as punishing anti-dumping measures intended to protect China’s budding domestic wine industry and their market share.

Despite Beijing’s activity with the WTO dispute settlement system, its compliance with dispute rulings has been mixed since becoming a member. As Australian authorities hold out hope that a formal WTO complaint against Chinese tariffs will facilitate consultation and negotiation, it is unlikely that a resolution will be found swiftly. In the meantime, Australian wine producers will continue to look to other markets to offset reliance on the Chinese market, including with sales increasing to the Netherlands, South Korea, and Taiwan.