March 28: With increased political tensions between Australia and China which announced extension of the increased taxes on wine to up to 220% for another 5 years on Friday a couple of days ago, Australia is likely to take the matter to the World Trade Organisation (WTO) just like EU had done against India almost 2 decades ago, forcing it to reduce the customs duty from around 260% to 150% in July 2007
as had been agreed between the two in the 1990’s
Australia’s booming wine economy with China that became their biggest export market in 2019 reaching the crescendo at A$1.3 billion, suffered a setback last year when China proposed trade sanctions in the guise of anti-dumping punitive action and increased the import duties against Australian products that included wheat, barley, wine and coal.
In what Australia considered a breach of the Free Trade Agreement (FTA) between the two countries, China had announced tariffs on Australian wines ranging between 107% and 212%, depending on the producer (Treasury Wine Estate was required to pay the highest tariffs) from 28 November, 2020 for what China claimed as ‘dumping’ of Australian wines on the Chinese market causing substantial damage to the domestic industry. There was no fixed end-date to the tariffs described merely as temporary.
Australian wine, beef, coal and other exports had been targeted by the Chinese government in the trade- standoff between the two countries that had been simmering for two years, reaching a boiling point last year. In 2018 too, shipments were stuck up uncleared by the Customs in China for quite some time, seemingly due to political interference.
Also read: Australia China Tussle hits a High with 200% Import Duty on Wine
Trade Minister Dan Tehan said the tariffs meant it was basically impossible for Australian wine to be competitive in the Chinese market. “This decision taken by the Chinese government is extremely disappointing and completely unjustifiable," he told reporters in Melbourne, adding, “we will be looking at next steps, including taking the matter to the World Trade Organization."
Late last year, Australia had already approached the WTO to investigate Chinese tariffs on barley imports, following a series of economic sanctions or disruptions to Australian products to China's vast market, according to Agence-France Presse Report in ndtv.
Also read: China Bans Wine and Imports of several Products from Australia
Diplomatic relations between the two countries have reached their nadir since the infamous 1989 crackdown at Tiananmen Square. The current showdown had started when the Australian Prime Minister Scott Morrison had requested the Chinese government to investigate the source of CoronaVirus in China and make the findings public. Morrison has accused China of using tariffs as a punitive and retaliatory measure. China claims the tariffs are merely anti-dumping measures to safeguard the business interests of local wine producers who had complained about it last year.
Looking towards India
Meanwhile, optimistic Australian wine bodies, perhaps mistakenly, believe that India could be the next trade pivot to counter China ‘ban’. After China has slammed the door, Tehan feels it’s time to get back to the negotiating table with India for a free-trade agreement (FTA). Easier said than done! Chile tried it and did not succeed-it had to settle for half-treaty that excluded wines. EU has spent over 12 years negotiating but the FTA has been eluding both the EU and India and the post-Brexit- EU are scheduled to be back on the negotiating table in May 2021 for the renewed talks.
Also read: China Launches Anti-Dumping Probe against Australian Wines
Pernod Ricard has made huge strides in India making Jacobs Creek as the formidable number one foreign brand in India but the tail (other wines) has been long with no single brand making a significant mark as a brand. Besides, the Indian imports being relatively insignificant (under 500,000 cases a year) in comparison with the domestic production do not offer a lucrative market. The domestic producers strongly resist the import of cheap imports like Jacobs Creek which sell at prices even lower than many Indian wines, despite heavy import duties of 150%. The resistance to an FTA for duty free import of wines between Australia and India will be overwhelming and stronger than even China.
China has also been upset over the formation of QUAD- a group of four democratic countries that has the US, Australia, India and Japan as the members and has often expressed resentment and a perceived threat to China’s global role; Australia being a member also irks China. It has also been critical of the recent Quad Virtual Summit two weeks ago, on 12 March 2021.
Also read: Customs duties finally reduced on wine imports
Only time will unravel the future tariff scenario on wines but the use of import tariffs as trade barriers seems to be also visible with the recent action by the former US President Donald Trump imposing a duty of 25% on wine imports from France, Spain, Germany and the UK-the nations getting subsidies for the Airbus, and threat of a 100% duty on Champagne- which has now been withdrawn by the Biden Administration.
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