Did Australia start the anti-dumping trade contest with China?
27 Oct 2020|

The South China Morning Post has been keeping a running tally of the incidents in Australia’s deteriorating trade relationship with China this year, starting with a set of events that was entirely ignored by the Australian media.

On 13 February, Australia’s Anti-Dumping Commission commenced an investigation into Chinese aluminium extrusions followed by a separate investigation started on 17 February into Chinese aluminium flyscreens. On 28 February, the commission decided to extend anti-dumping duties on Chinese stainless steel sinks.

There were a further eight anti-dumping actions against Chinese products between March and July. Some of the punitive tariffs imposed on Chinese products were as high as 78%.

Australia’s trade minister, Simon Birmingham, and the farm lobby cried foul when China imposed anti-dumping duties on barley and announced anti-dumping and countervailing duty investigations into wine exports.

‘Australian farmers are among the most productive in the world, who operate without government subsidy of prices’, Birmingham said following the barley duties, adding that Australia reserved its right to launch an appeal to the World Trade Organization.

While there’s no doubt that the Chinese anti-dumping actions were spurred by the breakdown in relations with Australia, there are many in trade circles who believe Australia had it coming anyway.

Australia has been the world’s third most prolific user of anti-dumping measures over the past six years, having initiated 84 actions, with only India and the United States doing more, according to the World Trade Organization. The vastly larger European Union economy, by contrast, initiated 67 actions over that period while Japan initiated just six.

Australia dismantled its forbidding tariff walls under the Labor government of Bob Hawke and Paul Keating in the 1980s and 1990s, but the anti-dumping bureaucracy that was left behind remained responsive to industry complaints.

It allows anti-dumping duties to be imposed if it can be shown that goods are being imported for less than they are being sold in their home market; countervailing duties can be imposed when the imported goods have been subsidised.

The Productivity Commission argues that anti-dumping actions should have been abolished along with the tariff barriers, as they are simply a form of industry protection that results in higher prices for both industry and consumers.

However, there is always political mileage to be gained from protectionism. In the lead-up to the Coalition’s 2013 election victory, Tony Abbott vowed to reverse the onus of proof in anti-dumping investigations, so it would be up to the importer to prove its products were not being dumped, not up to the Australian government to prove they were. That would have flatly contradicted WTO conventions to which Australia is a signatory.

Ahead of the 2019 federal election, Labor’s Bill Shorten promised to triple anti-dumping duties, although, again, that would have flouted the WTO requirement that duties be proportionate to the difference between export and home prices.

In practice, successive governments have made it easier for firms to lodge anti-dumping complaints, and the result has been a steep increase in the number of active anti-dumping cases from 23 to 95 over the past decade.

China, which is the target of a third of Australia’s anti-dumping measures, has particular reason to feel aggrieved. In 2005, the Coalition government under John Howard agreed (in the teeth of strong opposition from the United States) to recognise China as a market economy. Australia was the third country to do so, after Singapore and New Zealand.

Market economy status, which was a precondition for Howard commencing negotiations for a free-trade agreement with China, carried precise implications for anti-dumping actions under WTO rules.

An anti-dumping action against a market economy could proceed only if it were shown that goods were being sold for less in an export market than their cost in the country of origin.

For a non-market economy, it was assumed it was too hard to estimate that cost, so a proxy based on the cost of the goods in question in other markets could be used. It is nearly always possible to demonstrate that goods are being sold at below cost when a surrogate measure of cost in an entirely different market is used.

Despite Australia formally granting China market economy status and sealing the free-trade agreement, the Anti-Dumping Commission has continued to treat China as a non-market economy, making use of a WTO exemption for products where a ‘particular market situation’ (in WTO parlance) is held to be distorted by a regulatory or other government intervention.

Last year, Australia lost a crucial case at the WTO over its use of this ‘particular market situation’ exemption when imposing anti-dumping duties on Indonesian A4 copy paper. The Anti-Dumping Commission had deemed that the Indonesian manufacturers were benefiting from government timber subsidies resulting in cheaper pulp, so it constructed a benchmark based on the export price of South American pulp destined for Korea.

However, the WTO concluded that the commission was required to investigate the Indonesian producers’ costs before applying a surrogate price and it had failed to do so.

The commission has used surrogate pricing in most of its anti-dumping actions against China, and trade lawyers say the WTO’s ruling on Indonesian copy paper gives China a strong case to overturn the Australian actions.

China used a different WTO exemption when calculating its anti-dumping tariffs on Australian barley, claiming it was unable to obtain sufficient information from Australian barley producers to estimate the normal domestic cost and had therefore used the ‘best information available’, which it decided was the cost of Australian barley landed in Egypt. It came up with a 74% anti-dumping duty.

China added a further 7% countervailing duty to compensate for subsidies to Australian barley growers. Again, it said it was unable to get adequate information from the Australian authorities to calculate the size of 32 different rural subsidies, of which the biggest was the Murray–Darling basin infrastructure program. Instead, it asked the China Chamber of International Commerce to come up with a figure: it suggested $10 billion.

Australia’s wine industry is now bracing for similar treatment. In its claim, China’s wine industry argues that between 2015 and 2019, the import price per litre of Australian wine fell 13.7% while the average price of China’s wine imports rose 1.4%. Australia’s share of the Chinese wine market rose from 3.7% to 13.4%, with the increase coming at the cost of Chinese wine producers.

Birmingham has not yet delivered on his threat to appeal the Chinese barley tariffs. That may be because he doesn’t want to inflame the situation, or it may be out of fear that China would counter with a potentially successful appeal against Australia’s anti-dumping program.

In either case, Australia’s aggressive anti-dumping approach to China has left highly successful Australian export industries hostage to the fortunes of the broader bilateral relationship.