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Barley Talks May Be ‘First Step' Toward Better Trade Ties With China. Australia Hopes Wine Is Next

Carla Gottgens | Bloomberg | Getty Images
  • A resolution on barley may be still be months away, Australia's Trade Minister Don Farrell told CNBC.
  • Australia on Tuesday agreed to "temporarily suspend" a World Trade Organization complaint against China for its 2020 decision to impose 80.5% duties on Australian barley at the height of diplomatic tensions.
Barley ready to be harvested on a farm near Inverleigh, some 100kms west of Melbourne on December 14, 2020
William West | Afp | Getty Images
Barley ready to be harvested on a farm near Inverleigh, some 100kms west of Melbourne on December 14, 2020

Australia and China's agreement to review trade restrictions on barley is a crucial "first step" toward improving strained ties between both sides — but a resolution may be still be months away, Australia's Trade Minister Don Farrell told CNBC.

"Barley is the first step in a long process of stabilizing our trading relationship with China," Farrell said Friday, after the two economic giants agreed this week to work toward removing tariffs on Australian barley.

Australia on Tuesday agreed to "temporarily suspend" a World Trade Organization complaint against China for its 2020 decision to impose 80.5% duties on Australian barley at the height of diplomatic tensions.

"Following recent constructive dialogue at all levels, we welcome China's agreement to undertake an expedited review of the duties over a three-month period, which may extend to a fourth if required," the Australian government said.

Since China's 2020 tariffs on barley, Australia has been essentially blocked from exports to that market worth about $620 million ($916 million Australian dollars) in 2018-19.

"It's an act of goodwill... What we indicate was that we would suspend our World Trade Organization application in respect of barley in return for an early re-examination on China's part of the tariffs," Farrell said.

When asked about a timeline on a complete resolution to the barley tariffs, the Australian trade minister said he was looking at "the next three to four months."

"Those issues didn't occur overnight, they won't be resolved overnight," Farrell told CNBC.

In addition to barley, other Australian products caught up in the the China-Australia- trade dispute include wine, lobsters, beef and cotton, which were slapped with varying degrees of restrictions.

In March, China reversed restrictions imposed on Australian coal imports, Bloomberg reported citing sources familiar with the matter.

Australian farmers are hoping a reversal of tariffs will be extended to barley growers.

"We're hopeful that at the end of it, that those duties will be reviewed, and that will be positive from a pricing perspective in what has been a very high production year and time for our Australian growers," Shona Gawel, CEO of GrainGrowers, a representative body for Australian grain farmers, told CNBC "Street Signs Asia" on Wednesday.

Importance of trade with China

Over the last few years, there has been a collective $20 billion worth of trade previously done with China that has been halted, according to Farrell.

"We've started with barley to see whether or not we can resolve our outstanding issues," Farrell said, adding he is hopeful this could provide a template to deal with other tariffs on hand.

He acknowledged that Australia and China share a somewhat "paradoxical relationship."

"On the one hand, they're far and away our largest trading partner, we did almost $300 billion worth of trade with China last year," he said.

"To put that into perspective, that's more than all of the trades that we do with the United States, Japan, Korea, Singapore, the United Kingdom, in Germany, so it's a huge market for us."

What could be next?

While the future of Australian barley returning to China again is still not confirmed, Farrell is hoping wine could be next on the list.

In March 2021, China introduced a crushing five-year tariff of up to 218% on Australian wine.

"Wine is the next cab off the rink as far as we're concerned," the trade minister told CNBC, adding that Australia has not suspended its appeal to the World Trade Organization against Beijing with regard to wine.

"I will be hopeful that if the process that is started now ends in a resolution of the barley dispute, then we could quickly move to resolve the wine dispute," said the trade minister.

Australia's wine industry had been "very hard hit" by China's decision to increase tariffs, and unlike barley, it has not been as easy to source for alternative markets for the country's wine even with Australia's new free trade agreement with India.

"Whereas barley farmers found it relatively easy to place their product in alternative markets, the sheer scale and price premium offered by the Chinese market made that impossible in the case of wine," said James Laurenceson, director of the Australia-China Relations Institute (ACRI) at the University of Technology Sydney, told CNBC in an email.

"The agreement this week will almost certainly see Chinese tariffs removed and Australian barley back in the Chinese market within the next six months," Laurenceson said, adding that he hopes the "positive trajectory of Australia-China relations continues to firm up."

Copyright CNBC
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