'Devastating blow': Trade Minister lashes out at China's wine tariff hit

China's multibillion-dollar trade dispute with Australia has entered perilous new territory after Beijing slapped tariffs of up to 200 per cent on Australian wine and the Morrison government accused China of breaching its free trade agreement.

The sudden escalation prompted one of Australia's largest wine exporters to move into a trading halt on Friday while Australian ministers unloaded on the Chinese government in a diplomatic row that threatens to spiral into $20 billion worth of exports across half-a-dozen industries.

Under the new measure, Chinese importers will have to pay a duty levied against Australian wine companies. This will vary from 107.1 per cent to 212.1 per cent, depending on which company has produced the wine.

The money raised will be held by Chinese authorities and could in theory be refunded, depending on the final findings of China’s anti-dumping investigation. But the Australian industry believes that the measure will hurt wine producers regardless of its preliminary status, because it increases the cost of wine and discourages exports.

In his strongest comments to date, Trade Minister Simon Birmingham said China's decision on Friday to place steep tariffs on Australian wines would be a "devastating blow" to the industry, rendering businesses unviable.

"The cumulative impact of China's trade sanctions against a number of Australian industries during the course of this year does give rise to the perception these actions are being undertaken as a result or in response to some other factors," he said.

"Doing so is completely incompatible with the commitments that China has given through the China-Australia Free Trade Agreement and through the World Trade Organisation. It's incompatible with a rules-based trading system."

The government has for months said it was up to China to explain why Australia was being targeted with infringements that Beijing insisted were unrelated to the diplomatic disagreements.

But Senator Birmingham is now accusing China of using the perception of economic pressure to force a change in Australia's positions on Huawei, foreign interference, national security and other issues raised by the Chinese embassy last week.

The White House and the British government have rallied behind the Morrison government, with the US ambassador to Australia and the UK's foreign affairs committee chairman both condemning China's aggression.

Agriculture Minister David Littleproud on Friday said Australia would not compromise its policy positions in response to trade threats.

"That's what any Australian government of any political persuasion is elected to do. We'll never, never compromise any of those values and principles. We're a sovereign nation, we expect to be treated with the respect of a sovereign nation," he said. "We'll not be for turning."

We'll never, never compromise any of those values and principles... We're not for turning.

Agriculture Minister David Littleproud

The wine strike is the latest in a long line of hits on Australian exports by Beijing this year. Diplomatic disputes over China's coronavirus response, human rights breaches and territorial expansion culminated last week when the Chinese embassy issued a list of 14 grievances with Australia to Nine News, The Sydney Morning Herald and The Age.

More than a dozen ships loaded with millions of dollars worth of Australian coal and hundreds of crew members have been stranded for months outside Chinese ports unable to offload their cargo. Queensland and Victorian timber exports have been rejected and seafood subject to quality control measures that meant 20 tonnes of live lobster perished on the tarmac at Shanghai's airport, unable to clear customs.

Trade Minister Simon Birmingham. Credit: Alex Ellinghausen

China's Ministry of Commerce on Friday issued the preliminary ruling after China's drink industry accused Australian producers of dumping discounted wine into China, reducing the competitiveness of local producers.

The ministry announced it would apply a tariff rate of between 107 per cent and 212 per cent on Australian wines.

Australian wine is just one product that has become hostage to Beijing's trade tactics and "grievances".Credit:

The ministry said it had conducted investigations in strict accordance with relevant Chinese laws and regulations and World Trade Organisation rules. The Australian government and the local wine industry have strongly denied the allegations.

Australia exports $1.2 billion of wine to China each year and wine industry leaders scheduled urgent talks on Friday afternoon with Senator Birmingham to discuss China’s tariff move.

Australian Grape and Wine chief executive Tony Battaglene said that wine produced by companies that registered for China’s anti-dumping investigation would receive a tariff of between 107 per cent 167 per cent.

Australia Swan Vintage will have the lowest tariff rate of any of the producers targeted. It lists former Australian ambassador to Beijing, Geoff Raby, who has promoted greater dialogue and business links with China during the trade dispute, as its brand ambassador.

Australia’s biggest wine company Treasury Wine Estates, a major exporter to China, was among the companies that participated in the investigation.

Shares in ASX-listed Treasury Wine tumbled 11.3 per cent to $9.23 as news emerged of the Chinese decision, wiping almost $845 million from its market capitalisation before it went into a trading halt.

"We don’t see it’s justified and we’re obviously deeply concerned about what it does," Mr Battaglene said of the tariff move.

"It’s all rather academic up around those levels anyway. Because once you’re up at 160, 200 per cent, essentially it’s going to be very difficult to sell product that consumers are prepared to pay for," he said.

Australia has the biggest market share in China of all wine-exporting nations. Australia also has many wine producers that export wine only to China.

"I think it will have a serious impact," Mr Battaglene said.

"I mean, it’s very difficult to see that you can be hit with a tariff that size and still maintain the market size that we have. Obviously, we’ve got some high valued product there, and if the consumer is willing to pay for that then that’s good, but it will have a margin impact."

Treasury Wine subsequently issued a second statement to the ASX requesting a trading halt in its shares that could last until next Tuesday, so that it could digest the tariff announcement.

"TWE is reviewing the details of the provisional measures as a matter of urgency in order to update the market," Treasury said.

The $7.5 billion wine giant does not disclose the value of its China sales, but it is believed that Treasury generates hundreds of millions of dollars in revenue in the China market.