Australia offers Europe a warning on a trade deal with China

SYDNEY — The EU and China have struck their long-awaited investment deal — but what is Beijing’s signature worth when it comes to trade pacts, and what does it cost?

Australia, which has descended into a nasty trade fight with China, its biggest trading partner, has some uncomfortable answers for the Europeans on these questions.

The bottom line: top-level politics trumps trade every time. Canberra’s experience shows the pitfalls of trying to balance economic policy with national security, regional politics and other interests. Many observers say a multilateral approach would be more effective than bilateral agreements in dealing with China and its “wolf-warrior” style of diplomacy, named after a popular Chinese action film.

Canberra’s landmark free-trade agreement with Beijing, signed in 2015, has done little to shield Australia from a politically motivated onslaught against its exports from the Chinese government. Despite the China-Australia Free Trade Agreement (ChAFTA), Beijing has hit Australia with a series of trade restrictions since Canberra last April called for an independent investigation into the origins of the coronavirus pandemic, which emerged from the Chinese city of Wuhan.

The following month, the government of Chinese President Xi Jinping slapped huge tariffs on Australian barley, one of the country’s top agricultural crops. Beijing has progressively added other products to its list of targeted Aussie goods, variously claiming it is protecting its market from dumping, mislabeling or pest infestations.

In addition to 80 percent duties on barley, China has imposed tariffs of more than 200 percent on Australian wine as well as imposing restrictions on Australian exports of beef, lamb, cotton, lobsters, timber and coal. The Chinese measures affect Australian industries that had 2019 exports to China of 47.7 billion Australian dollars, or around €30 billion.

“The targeted nature of Chinese government measures on Australian goods raises concerns about China’s adherence to the letter and spirit of both its ChAFTA and its WTO obligations,” Australia’s then Trade Minister Simon Birmingham told the country’s senate in early December.

Michael Shoebridge, a director at the influential Australian Strategic Policy Institute (ASPI) think tank, which receives funding from Australia and other governments, said there were worldwide lessons in China’s behavior. “Other countries and companies must realize that the commitments China makes cannot be relied upon,” he warned.

Australia has protested the Chinese barley duties at the World Trade Organization, and hasn’t ruled out further action. Canberra complains that efforts to discuss the trade dispute with Beijing directly have been unsuccessful but has no plans to impose retaliatory tariffs on Chinese goods. China is Australia’s top export destination as well as its main supplier of imports.

List of grievances

There was bad blood between the two trade partners even before the coronavirus outbreak. Canberra in 2016 blocked bids by two Chinese companies for electricity distributor Ausgrid over national security concerns; and in 2018 it banned China’s tech giant Huawei from its 5G network.

Beijing drove its political message home in November with a 14-point list of grievances with Canberra. It complained about the Huawei 5G ban and the blockage of Chinese foreign investment deals. It also bemoaned that Canberra was “spearheading a crusade” over China’s actions in Taiwan, Hong Kong and Xinjiang, “spreading disinformation imported from the U.S. around China’s efforts of containing COVID-19,” and took aim at “antagonistic” reporting on China by the Australian press, while also claiming Canberra was funding “anti-China” research at the ASPI think tank.

ASPI’s Shoebridge called the 14 complaints “a list of all the actions and ways China is using its power that are of concern to other nations.”

Plus, there was the doctored picture that was worth a thousand words.

After Australia published a damning report about war crimes committed by its soldiers in Afghanistan, a Chinese foreign ministry spokesman tweeted a manipulated image of an Australian soldier holding a bloody knife to the throat of an Afghan child. The incident infuriated Canberra, with Prime Minister Scott Morrison demanding the Chinese government delete the “deeply offensive” tweet and apologize.

“The relationship Australia has had with China has been sobering,” said Tom Tugendhat, chairman of the U.K. House of Commons foreign affairs committee. “Many thought that commerce with China would bring China into rules-based systems, but that is not what has happened. It has given China huge leverage over Australia,” he said.

Australia’s experience with China reinforces the belief of many observers that bilateral agreements are not the best way to deal with the economic leverage of the Asian giant.

Former Australian Prime Minister Kevin Rudd, now president and chief executive of the Asia Society, told POLITICO the EU’s deal with China was an example of Beijing using trade to divide and conquer, “setting up a binary of bad Australians and Canadians, and good Europeans.” Rudd added that the U.S. would need to work “with the deepest level of calibration with its major allies,” if it is to manage “the China challenge.” 

Retired Lieutenant General James Clapper, who was U.S. director of national intelligence in the Obama administration, agreed. He told POLITICO: “The only way, the only hope, of inducing change in Chinese economic behavior is through multilateral pressure.”

Danny Russel, a senior official in the Obama White House dealing with China, said Australia’s predicament made clear that democracies need to work together to limit Beijing’s use of its economic leverage. “The heart of the matter is that if this intimidation play works against Australia … there is going to be more of this behavior,” he argued.

The mix of economic and non-economic issues clouding Australia-China relations should seem familiar to EU leaders, who just pushed through their long-sought investment agreement with Beijing despite concerns in European capitals about crackdowns on democracy activists in Hong Kong and the Uighur Muslim minority in Xinjiang. Some EU countries also said Brussels should have coordinated its approach with the administration of U.S. President-elect Biden, which indicated it wanted to work with Europe on China policy.

Joerg Wuttke, the president of the EU Chamber of Commerce in China, acknowledge the quandary that China’s economic might and Beijing’s “political bullying” represents. “China will not stop this any time soon, and we cannot stay away from this market,” he said.

The Chinese ambassador to the EU declined a request for an interview, while Beijing’s envoy to Australia did not respond to a request for comment. The Chinese Mission to the EU pointed to a comment from the Chinese foreign ministry, which touted the benefits of the EU-China investment agreement.

Not backing down

Despite the fact a full-blown trade war with China is estimated to potentially cost Australia 6 percent of its GDP, Canberra is defiant.

“We won’t be compromising on the fact that we will set what our foreign investment laws are or how we build our 5G telecommunications networks or how we run our systems of protecting against interference,” Prime Minister Morrison said in November.

An EU official said the Europeans are “following developments closely and regret the recent deterioration in China/Australia relations. We hope that China and Australia can re-engage in dialogue, avoid escalation and unilateral pressure.”

The U.S., the EU and other allies “need to work together to reduce the leverage China has,” argued ASPI’s Shoebridge. “China uses its economy as a weapon and it will use it against every country in the EU and every member of the World Trade Organization when it suits it.”

Ryan Heath reported from New York. Barbara Moens contributed to this article.