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Summary

• Australia’s trade relations with China made headlines due to conflict regarding an independent review of the origin of COVID-19.
• China had imposed 80% tariffs on the Australian barley exports, as well as suspended beef imports into China due to different reasons.
• Lately, China had announced an anti-dumping investigation into wine exports of Australia amid escalating trade tensions.
• Proving the dumping allegations generally takes time, and this investigation is likely to complete in a year’s time and might extend till 18 February 2022 under certain conditions.

The news about deteriorating Australia-China’s relation might have sounded like a bag of wind for many, but things have started getting serious with back to back developments that can potentially have a significant impact on Australia, especially its agriculture sector. Starting with barley, followed by beef; off late, China has got Australian exporters anxious over allegations of selling wine below the cost of production.

The relationship between Australia and its largest trading partner China look like going down the drain, and the latest wine-dumping allegation might be another nail in the coffin.

China Launches Investigation Into Australian Wine Exports

The freshest development might be sour grapes for Australia as its significant importer of wine has laid allegations that the winemakers of Australia are dumping their product to China.

Furthermore, the Government of China has warned students as well as tourists to not travel to Australia amid souring Australia-China relationship.

The move from the Chinese Government had the Australian makers in a state of anxiety as China alleges that winemakers from Australia knowingly dumped wine bottles into China at lower prices targeting to claim a bigger market share.

Related: Latest Developments Shaping up Australian Wine Sector's Future

Dumping generally entails the act of selling an exporter’s products into the export market at a price lower than the price in the domestic market. This might unfold into the exporter, gaining a larger share of the market by offering lower prices. If it is proved that the exporter has been “dumping” his/her product, there can be tariffs imposed by the governments to level the field for players in the market.

Australian winemakers are believed to bestow decades in building their brands in China and gradually establish their presence in the country. Moreover, it is reported that Australian wines have been sold in China at prices that are higher than what they have been in Australia.

Australian Exporters Deny Allegations

However, it is said that there exists significantly less evidence to support China’s allegations and the Australian Government as well as winemakers and farmers have denied these allegations.

One of the biggest wine exporters to China, Treasury Wine Estates Limited (ASX:TWE) has responded that it shall co-operate with any requests received for information from Australian or Chinese authorities.

Subsequent to the investigation issued by the Chinese Government, the shares of TWE were placed in trading halt after plunging 15%.

Furthermore, TWE shared its intention to stay committed to China as a priority market and shall remain progressive towards establishing premium and luxury brands, while working with stakeholders to improve the wine category and expand its contribution to China.

In addition to TWE, Australian Vintage Limited (ASX:AVG) also shared its intention to extend its cooperation in connection with the information required as part of the investigation, after China launched an anti-dumping investigation into Australian wine exports into China.

Imposing tariffs might be a blow for winemakers in Australia as well as the government. Australian Government has already put out a considerable amount in the name of COVID-19 stimulus to support the businesses.

Interesting Read: A Toast For You! How are Australian Wine Exporters Placed Amid Pandemic?

China’s Ministry of Commerce believes that the investigation into the dumping of wines into China might be completed before 18 August 2021. However, investigation for proving the dumping generally takes time and, in this case, the investigation period could extend till 18 February 2022 under certain conditions.

Increased Barley Tariffs and Cancelling Beef Import Licences

It all began with China raising the tariff on Australian barley to 80% and barring the import licences of some major Australian beef producers. This impacted almost one-fifth of Australian exports as China is a crucial trading partner of Australia. Ever since these developments, the tensions have kept on mounting between the two nations.

Amid the trade war between the US and China, the US Government made direct payments of around US$32 billion to its farmers in 2020 in response to the tariffs imposed by China on the US agricultural goods.

Australia is heavily dependent on foreign investment, and China is among the top investor in Australia, and this investment had grown significantly over the years. However, things have started tasting sour for Australia after Australia demanded an enquiry into the handling of the novel coronavirus in China, adding pressure on China that was raised by the US initially.

In June 2020, the Australian Government had announced that the UK had entered formal negotiations over a free two-way agricultural trade deal between Australia and the UK, which is projected at approximately $1.5 billion in value.

Related: Treasury Wine Estates seeks to deliver shareholder value

In the case of dumping wine, things may take time to unfold, and it is too early to jump to a conclusion at this time.

Bottomline

As the diplomatic relations between Australia and China continue to unravel, China has taken a quick step targeting Australian winemakers in their latest allegations. Presently, key Australian exports of wine have denied the allegations and intend to offer full cooperation as the investigation progresses. However, there remains significant uncertainty for the Australian winemakers as China is a substantial importer of Australia made wine.