On Global Trade & Investment
Published Three Times a Week (with occasional bonus quotes) by
The Global Business Dialogue, Inc.
Washington, DC  20006
No. 78 of 2020

Click HERE for Tuesday's quote on fish in the North Sea.


“The Australian cotton industry is working to understand apparent changes to export conditions for Australian cotton to the People’s Republic of China.”

Adam Kay
Cotton Australia

Michael O’Reilly
Australian Cotton Shippers Association

October 16, 2020
To say that Australia and China are trading partners doesn’t begin to tell the tale. China is, by far, the biggest market for Australia’s exports, taking roughly 40 percent of the total in 2019 or about $103 billion. China is also the largest supplier of Australia’s imports. Australia and China were both founding members of the GATT, the predecessor to the WTO. But that, of course, was the Republic of China (1912-1949). The People’s Republic of China did not become a member of the World Trade Organization until December of 2001. The simple point here is that both are members of the WTO and bound by its rules. The trade between them is also governed by the China-Australia Free Trade Agreement or ChAFTA, which entered into force in December 2015.

All of that said, this has been a tense year for China-Australia trade, as China has taken aim at one Australian export after another to signal its displeasure with Australian policies. Australian barley, beef, and wine were hit with import restrictions earlier. Last week it was coal and cotton – what might be called Australia’s black and white exports to China. This time, though, China’s restricted policies were not in black and white. They were instead oral instruction to Chinese buyers of those products not to buy from Australia. 

Our focus today is on cotton, and these two paragraphs from a recent article in The Daily Mail Australia set the stage:

Chinese spinning mills have been told to stop buying Australian cotton and the industry could soon face tariffs of up to 40 per cent.

Cotton millers in China are given an import quota each year, but have been told they may not receive the allowance if they buy from Australia.

Today’s quote is from a statement issued jointly last Friday, October 16, by Adam Kay, the CEO of Cotton Australia, and Michael O’Reilly, chair of the Australian Cotton Shippers Association. The featured quote is the first paragraph of their statement. The second paragraph reads:

It has become clear to our industry that the National Development Reform Commission in China has recently been discouraging their country’s spinning mills from using Australian cotton. 

The statement goes on to say that Australia’s cotton producers are working with the Australian Government “to investigate the situation and fully understand what is going on.”

If you follow the link below, you will see that last Friday’s joint statement from Cotton Australia and the Australian Cotton Shippers Association is restrained, cautious, indeed, one might say tentative. That is hardly surprising. Some 64 percent of Australia’s cotton crop regularly goes to China, and that trade is worth about $611 million a year, according to the Daily Mail Australia. Now it is being threatened. Clearly, there is something wrong here. The South China Morning Post, in its report on these developments, suggested China’s actions against coal and cotton may violate both the China-Australia Free Trade Agreement and the rules of the WTO. Regarding the latter, the reporter wrote:

“The moves against coal and cotton, which both emerged in quick succession last week, could also breach China’s WTO commitment which stipulates that it can only implement trade measures on another country after they have been made public and also made available to its trading partners,” albeit with some allowance for emergencies. 

Such actions certainly violate the spirit of Article I of the GATT, which commits the members to a policy of non-discrimination. It does so, however, by talking about duties, charges, rules and formalities. It is not clear, for example, how the system would deal with, say, a telephone call. 

In any event, our understanding is that no case has been brought and quite possibly never will be. Leaving aside the current problems with the WTO dispute settlement system, collective action against China is hard, given the larger number of countries that depend on China as a market for their exports.

We’ll end this with an old memory and one or two thoughts, and for those, we’ll abandon the editorial we. My first trip to the WTO, then the GATT, was sometime in 1981, when I was working for the National Association of Manufacturers. My most memorable meeting during that Geneva visit was with the GATT Deputy Director-General who said “the purpose of the GATT is to get governments out of trade.” That, clearly, was before the time when everything seemed to be about global governance. 

And more clearly still, it was before there was anything like today’s China, a country’s whose key trading characteristics upend earlier ways of thinking about trade. It is the world’s largest trading nation. Critically, it is the world’s largest importer, and large swathes of decisions about what to import and from whom are made by Chinese government officials and/or executives of state-owned enterprises. We would add to these facts our impression that China sees its buying (and sometimes selling) power as just that, power. And power unused is power wasted; so it is used for whatever advances the interests of the state. 

If that last assessment is too harsh, well, then soften it with a question mark. But let us not ignore it, especially when it comes to China’s acquisition and or use of commodities, whether those acquisitions be a boon to sellers, as is the case for Australian cotton, Chilean copper, and American soybeans, or a concern to other consumers. Think fish and rare earths.    
Joint Statement is a link to the statement issued on October 16 by Australia Cotton and the Australian Cotton Shippers Association.  This was the source for today featured quote.

China’s Economic Squeeze is a Wall Street Journal story on China’s move away from Australian Cotton. 

Coal and Cotton Curbs is the report from the South China Morning Post, quoted above, which focuses on China’s recent actions as potentially violating both the China-Australia Free Trade Agreement and the WTO.

Trading Economics takes you to the page of this website with figures for Australia trade.

Not To Order Aussie is the Daily Mail Australia story cited above.

Or Other GBD Notices, click below.