Offer on table for China trade deal; Government prepared to drop WTO cases

Trade Minister signals ahead of China trip that two WTO cases could be withdrawn if it shows ‘goodwill’ in dropping trade bans.

Federal Trade Minister Don Farrell. Picture: NCA NewsWire / Emma Brasier

Trade Minister Don Farrell has signalled ahead of a trip to Beijing that the Albanese government is prepared to withdraw two World Trade Organisation cases against China if it shows “goodwill” in dropping its trade bans against Australia.

Senator Farrell, who is likely to visit China in February for talks with counterpart Wang Wentao, said Australia had made it clear to the Chinese government it would prefer to resolve the wine and barley cases “by discussion” rather than arbitration.

He said if China overturned its trade bans against Australia, it would also send a message to Trans-Pacific Partnership nations, which remain unconvinced of Beijing’s commitment to free trade rules ahead of a decision on China’s application to join the 11-nation bloc.

Senator Farrell spoke to The Australian ahead of the activation on Thursday of the Australia-India Economic Co-operation and Trade Agreement, which eliminates tariffs on 85 per cent of Australian exports to the market of 1.4 billion people.

The minister, who revealed he was likely to travel to New Delhi in March with Anthony Albanese, said India was already “chomping at the bit” to discuss a second-round trade deal in the hope of gaining greater access to Australia’s employment market. Senator Farrell is also focused on finalising the Australia-EU free trade agreement in the first half of next year amid European demands that Australian producers give up using about 400 “geographical indications” for food and alcohol products, such as Parmesan, Feta and Prosecco.

He said Australia was negotiating from a strong position, with European carmakers and tech firms keen to stitch up preferential access to Australian critical minerals ahead of a 2035 EU ban on new fossil-fuel cars.

Senator Farrell said he was also confident Britain’s House of Lords would soon pass the landmark Australia-UK free trade agreement – the UK’s first since Brexit – which the House of Commons ticked off a fortnight ago.

After Foreign Minister Penny Wong’s pre-Christmas trip to Beijing, the way is now open for Senator Farrell to visit China to discuss the renewal of trade ties between the countries, including the removal of tariff and non-tariff sanctions on $20bn of Australian produce. He said Australia intended to proceed with its wine and barley cases in the WTO, but was prepared to consider withdrawing them “on the basis that there’s some goodwill shown on both sides”.

“We’ve made it very clear to the Chinese government that we would much prefer to sort out our differences on trade issues by discussion rather than arbitrations through the World Trade Organisation process,” Senator Farrell said. “We believe we’ve got very strong cases. Obviously, if China was to drop the bans on barley and wine, well then, the circumstances change.”

He said with decisions on the cases expected in the first quarter of 2023, the ball was in China’s court. “When you go into an arbitration proceeding or legal proceeding, you’re never entirely sure what the outcome is going to be,” he said.

“So I would imagine from the Chinese point of view … the sensible thing would be to sit down and have some discussions with us ahead of that.”

Australian wine exports to China crashed by nearly $1bn in 2020 amid crippling tariffs of more than 100 per cent, while an 80 per cent duty on Australian brewers’ barley smashed that $1.2bn market.

Non-tariff barriers also devastated Australian beef, lamb, lobster, cotton, timber and coal exports to China, as Beijing punished the Morrison government for leading an international push for an investigation into the origins of Covid-19.

China lodged an application in September 2021 to join the Comprehensive and Progressive Agreement on Trans-Pacific Partnership – one of the world’s biggest free trade deals that requires prospective members to demonstrate strong adherence to WTO rules.

“The difficulty that China has right at the moment, of course, is that us and other countries see that they’re not complying with the expected norms in terms of free trade,” Senator Farrell said.

He said Australia believed China needed to demonstrate its free-trade bona fides, irrespective of what happened with its CPTPP application. But if China dropped its trade sanctions against Australia, “it would reduce one of the one of the significant barriers to their admission” to the CPTPP, Senator Farrell said.

Under the new Australia-India trade deal, negotiated by the former Morrison government, New Delhi has eliminated tariffs on key Australian products such as wool, lamb, barley, oats, fresh lobster, cosmetics, many metallic ores, critical minerals, non-ferrous metals and titanium dioxide.

Tariffs on a further 5 per cent of Australian exports, including macadamia nuts, avocados, berries, seafood, pharmaceuticals, cochlear implants, vitamins, infant formula, breakfast cereals, and pasta, have been lowered and will be phased out within six years. Australian producers of premium wine, lentils, almonds, oranges and strawberries are also receiving significant tariff cuts.

In a timing quirk, because the agreement enters into force just before the end of the year, some exports will get a second tariff reduction on January 1, and annual cuts thereafter until their duties are eliminated.

“This agreement reflects the government’s commitment to diversifying exports and strengthening our partnerships,” Senator Farrell said.

The proposed second round deal, to be known as the Australia-India Comprehensive Economic Co-operation Agreement, will strive for deeper market access on both sides, and address areas such as digital trade and government procurement.

Senator Farrell, who recently returned from a trip to Europe and Britain, said he was buoyed by “very, very positive” meetings with EU Commissioner for Trade Valdis Dombrovskis, and French Trade Minister Olivier Becht, and believed a deal would be done in the first half of 2023.

The “most difficult sticking point” was the EU’s insistence that Australian producers relinquish the use of food and alcohol names originally derived from Europe, he said.

Senator Farrell said he had argued the food products were brought to Australia by European immigrants, who had a right to keep using the terms.

“We think the Europeans should recognise that and laud it rather than trying to shut down what they see as competition,” Senator Farrell said.