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Australian reliance on Chinese exports an economic reality



Coal is unloaded onto large piles at the Ulan Coal mines near the central New South Wales rural town of Mudgee, Australia on 8 March 2018 (Photo: David Gray/Reuters via File Photo).

Author: James Laurenceson, UTS

The share of Australia’s total goods exports going to China fell to 27 per cent in June 2022, a sharp decrease from 46 per cent just a year earlier. While some commentary has heralded this as a success for Australian diversification away from China, it is more accurately described as a redirection of trade flows.

‘Australia’s trade diversification away from China picks up pace’ was the narrative that the Australian Strategic Policy Institute chose to spin. Pointing to the same data, other analysts trumpeted that ‘Australia found other markets’ after Beijing disrupted access for Australian barley, coal, wine and other goods in 2020.

Taken as further evidence of desirable ‘diversification’ is an increase in trade with regional partners considered more strategically aligned with Australia. During the same period, Japan’s share jumped to 17.8 per cent — up from 11.6 per cent — while India’s reached 6 per cent (up from 3 per cent).

Looking ahead, free trade agreements (FTAs) including the Australia-India Economic Cooperation and Trade Agreement and ‘friend-shoring’ initiatives like the Biden administration’s Inflation Reduction Act are viewed as cementing the shift. The latter allows US-based manufacturers to claim a tax credit if they source a specified proportion of critical minerals contained in batteries domestically or from a country where the United States has an existing FTA.

But such tales cannot explain recent changes in trade shares. Changes in China’s trade share can be explained by movements in the world price of iron ore. Iron ore consistently accounts for more than 60 per cent of the value of Australia’s total goods exports to China. During 2020 and the first half of 2021, iron ore prices experienced an unprecedented run-up. Trade data indicates that this caused China’s trade share to be 12 percentage points higher. China’s trade share still rose by 6 percentage points even as Beijing was disrupting a range of Australian exports.

But iron ore prices began unwinding in July 2021. By December 2022, China’s trade share was in line with what would have been expected if iron ore prices had remained at their level in January 2020.

It is misleading to contend that trade share changes stem from Australian exporters ‘diversifying’ away from China and towards other markets. Diversification is a firm-level strategy that involves making costly investments in marketing and logistics to gradually cultivate new markets while generally striving to retain existing ones.

In contrast, the experience of many Australian exporters hit by Beijing’s trade disruption in 2020 was redirection of production at low cost to open and competitive global markets. The redirection of coal has been particularly significant as it accounted for 70 per cent of the AU$20 billion (US$13.8 billion) in Australian exports hit with disruption.

But redirection is not diversification.

If Beijing removes the disruptive measures, global markets may well redirect Australian exports back to China. Indeed, this process appears to have already begun as coal trade between Australia and China resumed in January 2023. Another implication is that the geopolitical risk from exposure to the Chinese market has proved to be limited, making the business case for many firms to invest in diversification much weaker than is often suggested.

Some affected Australian exporters were not protected by open and competitive global markets, particularly those selling differentiated products like those in the wine industry. These firms have been forced to begin the gradual and costly diversification process. At the end of 2019, markets for Australian wine other than China were worth AU$1.7 billion (US$1.2 billion). By the end of 2022, this had grown to AU$1.9 billion (US$1.3 billion).

But this was against sales to China collapsing from AU$1.1 billion (US$760 million) to just AU$12 million (US$8.2 million) and wiping out many exporters in the process. Particularly hard hit were smaller-scale exporters with insufficient resources to entertain the possibility of selling into multiple markets. In 2019, there were 1457 wine exporters selling fewer than 50,000 cases to China. In 2023, this now stands at just 45.

As the global transition to net-zero carbon emissions unfolds, the impact of ‘friend-shoring’ initiatives like the Inflation Reduction Act on trade shares are likely to be swamped by economic reality.

Bloomberg estimates that last year China invested AU$784 billion (US$545 billion) in…

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Fixing fragmentation in the settlement of international trade disputes



Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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WTO ministerial trading in low expectations and high stakes



The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Getting Vietnam’s economic growth back on track



Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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