Australia warns China coal ban will contravene WTO rules

Canberra has asked Beijing to clarify whether it has formally banned Australian coal, warning that such a move would breach World Trade Organization rules and harm both countries.

Scott Morrison, Australia’s prime minister, said on Tuesday that he was seeking explanations about Chinese state media reports that the country’s top economic advisory body decided at the weekend to allow power stations to import coal without clearance restrictions, with the exception of Australia.

The development follows Beijing’s imposition of informal trade sanctions, which have left dozens of cargo ships carrying Australian coal stranded off the Chinese coast and unable to unload shipments, in some cases for months.

“It would be a bad outcome for the trading relationship between Australia and China, that both countries benefit from,” Mr Morrison told reporters when asked about the reports in the Global Times, the Chinese nationalist tabloid.

“If that were the case, then that would obviously be in breach of WTO rules. It would obviously be in breach of our free trade agreement . . . It really is lose-lose here.”

China is Australia’s largest trade partner, with two-way trade worth A$252bn ($190bn) in 2019. But over the past two years, relations have soured as Canberra has resisted Beijing’s more aggressive foreign policy.

A memo leaked to Australian media last month by a Chinese diplomat cited Canberra’s ban on Huawei from the country’s 5G network and “disinformation” about China’s handling of coronavirus as among the reasons for the sharp deterioration in diplomatic relations.

China has already imposed sanctions on barley, beef and wine imports following Canberra’s call for an inquiry into the origins of the Covid-19 pandemic in Wuhan. The threat to Australian coal targets a commodity that generated A$55bn in exports earnings in 2019 and constitutes a widening of economic coercion measures against Canberra, according to analysts.

Mr Morrison said there was no prospect that his government would change its policies to meet Chinese demands, which would impinge on Australian sovereignty.

Simon Birmingham, Australia’s trade minister, said Canberra was close to making a decision on whether to file a formal complaint to the WTO about Beijing’s imposition of anti-dumping tariffs on Australian barley.

Australian thermal coal exports fell by 14 per cent year on year in the third quarter with shipments to China dropping by more than 50 per cent, according to Fitch, which said that Chinese purchasers of coal have used up most of their government import quotas.

The rating agency noted that Australian shipments to India rose by 96 per cent over the same period, “suggesting some of the cargoes heading to China were redirected”. 

Paul McTaggart, an analyst at Citi, said a decision by China to block Australian imports would lead to a rerouting of global supply, whereby Chinese steel producers would buy more coking coal from North America and European producers would buy more Australian coal.

“The world will readjust, trade flows will shift and people will pay more for coal due to the additional costs of shipping between North America and China and Australia to Europe,” he said. “This could add $10 per tonne to coal costs, with average shipping times extended by up to 10 days.”

Coal prices have risen sharply over recent months. Benchmark prices in Newcastle were trading at almost $79 a ton, compared with less than $50 a ton in September.

Additional reporting by Thomas Hale in Hong Kong

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