China has further escalated its trade dispute with Australia by initiating a second investigation into Australian wines in a matter of weeks, this time focusing on subsidised products.
While it was announced separately, a countervailing investigation into subsidised Australian wine imports launched by the Chinese Ministry of Commerce on Monday is a joint investigation with the anti-dumping probe initiated on August 18, taking a similar format to the investigation into Australia’s barley dumping, industry sources said.
The barley investigation that started in 2018 and concluded in May resulted in an anti-dumping duty of 73.6 per cent and a countervailing duty of 6.9 per cent, meaning a total tariff of just over 80 per cent.
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But a wine anti-dumping duty alone could far exceed the total duties imposed on barley, with the Chinese wine industry pitching for 202.7 per cent to cover losses due to the flooding of cheap Australian wine into the local market between 2015 and 2019, documents lodged with China’s commerce ministry said.
Similar to anti-dumping, the countervailing application by China Alcoholic Drinks Association said Australian products had grabbed a share of the Chinese wine market through price cutting.
Since 2015, Australian imports have increased in volume and decreased in price. It is very obvious
China’s Ministry of Commerce
“Since 2015, Australian imports have increased in volume and decreased in price. It is very obvious,” the application said.
China’s Ministry of Commerce said it would initiate an investigation into whether to levy countervailing duties against Australian wines alongside the anti-dumping investigation, anticipating to conclude the process within a year with a possible six-month extension.
As with the anti-dumping investigation, they will look at imported wines in containers of two litres or less having already conducted preliminary discussions with the Australian government, including consultations with Canberra on Thursday.
The countervailing application on Monday alleged the Australian government offered 40 wine subsidy programmes that allowed producers to offer cheap Australian wines that unfairly compete with Chinese products, although only 37 will be investigated.
A stand-out programme on the list is the A$50 million (US$37 million) Export and Regional Wine Support Package which has been extended to 2021 after it was due to end this year.
The Australian government said the programme is designed to help winemakers grow their reach in export markets, as a means of making higher returns that cannot be achieved in the domestic market due to the high local tax.
Australian wines attract a 29 per cent domestic wine equalisation tax – one of the highest in the world – forcing many winemakers to look to export markets for bigger profits to offset the taxes they have to pay the Australian government.
For smaller winemakers which cannot tap into export markets, they choose to remain small to qualify for a rebate on the wine equalisation tax.
Therefore, growth in the winemaking businesses is driven mainly by exports, as seen with large winemakers like Treasury Wine Estates, Accolade Wines and Casella Wines, all of which have been named in the investigations.
Some of the Export and Regional Wine Support Package strategies include “targeted marketing campaigns in China and the US” and “wine export and international wine tourism grants”.
The Australian industry welcomes the opportunity to build on these ties and work with the Chinese industry and government to further technical cooperation and develop lasting relationship
Australian Grape & Wine
But not all the programmes named in the Chinese countervailing application appear to be directly related to supporting wine exports as concessional “drought loans” for small businesses stretch across all agricultural industries.
Australian wine industry group, Australian Grape & Wine, acknowledged the investigation and said it would collaborate with wine businesses and the Australian Government to respond to the investigation.
“China is an important market for Australian wine and our wine is in demand from Chinese consumers. Australia has a large number of exporters with close cultural ties to China. The Australian industry welcomes the opportunity to build on these ties and work with the Chinese industry and government to further technical cooperation and develop lasting relationships,” the group said in a statement.
Australian Grape & Wine chief executive Tony Battaglene reiterated that there was no reason for Australian winemakers to “dump” cheap wines because they would stand to lose more than they would gain.
An investigation by the South China Morning Post last week indicated it was near impossible for producers to cut prices due to the high production cost of Australian wine.
Battaglene also said Australian wines generally had a higher premium compared to other wines from Chile, Spain and Argentina, which would be more likely to be sold cheaply.
He said the profit margins in China were very high and it would not make sense for Australian producers to drop their prices and lose their margin foothold.
Many wine producers believe the investigations are likely to be politically motivated, with one Melbourne-based winemaker who exports to China saying that she has never applied for any subsidies, including coronavirus-related grants, let alone the subsidies named in the countervailing application.
The latest development adds to a series of trade disputes and bilateral tensions between the two countries since April, when Australia led the call for an independent investigation into the origins of the coronavirus.
More from South China Morning Post:
- China doubles down on Australia trade dispute with new joint probe into wine subsidies and dumping claims
- China’s anti-dumping investigation into Australian wine is politically motivated, industry figures say
- China’s Mengniu calls off deal to buy Australian drinks company after failing to get Canberra’s approval
- Australia’s winemakers may be hoping in vain China drops anti-dumping case as it did with the EU
- Why has the China-Australia relationship deteriorated into what some are calling ‘trade war 2.0’?