Australian Financial Reveiw

Playing the Long Game on China Trade

Senior Fellow
Australia's Trade Minister Don Farrell attends a press conference following a meeting with Chinese Commerce Minister Wang Wentao in Beijing on May 12, 2023. (Florence Lo/POOL/AFP via Getty Images)

There were high hopes, but Trade Minister Don Farrell arrived back from China empty-handed. Conversation was apparently amicable. We were given assurances Chinese review of tariffs against Australian barley imports is on track.

That’s effectively Beijing telling us it will remove restrictions on Australian exports in its own good time and according to its own opaque priorities and principles. As usual, China is playing a longer game. We need to as well.

It might seem strange to raise this here but bear with me. Several weeks ago, Xi Jinping proposed a peace plan in Ukraine which included a cease-fire and negotiations without Russia giving up any of the territory it has seized since February 2022, and certainly not the Crimean Peninsula which Moscow forcible annexed in 2014.

Our trade dispute with China presents a very different context and the stakes are far lower.

But it is the same strategy being deployed by Beijing: normalise coercive and illegitimate behaviour before offering the prospect of stabilisation and relief as a gesture of grace and friendship in exchange for significant concessions by the other side.

What does China want? Most immediately, it wants Australia to drop our cases against it in the World Trade Organisation on behalf of our barley and wine exporters. It was a tactical mistake by the current government to suspend the WTO cases prior to Farrell’s meeting.

In dealing with a government not acting in good faith having imposed politically motivated trade punishments, suspending the WTO process prior to departure only weakened Farrell’s leverage when in Beijing.

Now that no immediate end to the tariffs were offered, the cases before the WTO should be immediately resumed.

To be sure, China had promised to expedite its review process for its tariffs against Australian barley and wine, which it affirmed during Farrell’s visit.

Nevertheless, there are more serious issues than just negotiation tactics as the reasoning behind escalating these disputes to the WTO remain valid. The Chinese measures have been in place against Australian barley and wine exporters since 2020 and 2021 respectively meaning we have suffered unjustified economic loss for an extended time.

Even if Beijing agrees to wind back its tariffs over the next few months following a spurious internal review of the measures against us, there will be no compensation for previous losses.

Moreover, we know Chinese measures against Australia is part of its standard diplomacy and tradecraft against other countries. In this case, Beijing foolishly admitted its tariffs and bans were payback for Australian domestic and external policies, most infamously confirmed in document of 14 grievances issued by China’s former ambassador in November 2021.

In the past few years, similar illegitimate moves have been made against economies such as Lithuania, South Korea, Japan, Taiwan, Canada, the Philippines, and the United Kingdom.

China suffers no economic or institutional injury if it can simply use bilateral processes to negotiate its way back to square one without any formal adjudication that its measures were unjustified in the first place.

Note that Brazil, Canada, Taiwan, the European Union, India, Japan, Korea, Mexico, New Zealand, Norway, the Russian Federation, Singapore, Switzerland, Turkey, Ukraine, the United Kingdom, the United States and Vietnam joined as third parties to Australia’s WTO action against China regarding the wine dispute.

Thirteen economies joined the corresponding Australian action on barley restrictions. Third parties are admitted if they can demonstrate a “substantial interest” in the case and are afforded the right to make submissions on the issues under arbitration.

Clearly, they believe there is much at stake when it comes to whether coercive Chinese measures are formally identified as unjust and illegitimate or simply allowed to be quietly wound back at a time of Beijing’s choosing. For those who favour the quiet bilateral approach, in this context this pathway weakens rather than reaffirms the relevance of the WTO regime and rules.

A further question is what else China wants for ending what it should not have imposed on Australian exporters in the first place.

Behind all the current talk about stabilisation of the relationship by both countries, there is no genuine truce or pause in Beijing seeking to expand its influence, if need be, at the expense of Australian autonomy and interests.

To Labor’s credit, it has demonstrated it is not for turning when it comes to key strategic and defence policies. Beijing has realised trying to change Australian commitment to AUKUS, ANZUS, or the Quad is pointless.

Instead, Beijing will seek to seduce or intimidate Australia in areas that do not overtly concern security and defence.

These include Australia agreeing to formally begin the process of considering China’s application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership while denying that prospect to Taiwan.

This would leave Japan stranded as the country least agreeable to Chinese membership and more supportive of Taiwanese ascension.

Beijing wants less Australian activism against Chinese attempts to dominate global bodies such as the various specialised agencies in the United Nations covering geopolitically important areas such as development, health, human rights, intellectual property rights, and aviation.

More broadly, China wants Australian leaders and diplomats to not just speak more quietly but become less proactive and creative than we have been over the past few years when pursuing our interests.

Inviting Farrell and offering the prospect of future relief is just one step in that process.

Read in Australian Financial Review.