China Coal Tariffs Move Complicates Australia Trade Talks

16 October 2014

Just one month before the planned completion of the long-awaited Sino-Australian free trade negotiations, Beijing announced a new tariff on coal imports that experts say could potentially have significant implications for the trade talks, which have been underway since 2005.

The regulation, which went into effect Wednesday, would raise import tariffs on non-coking coal to 6 percent, and on coking coal and anthracite coal to 3 percent.

The announcement comes just weeks ahead of a looming, self-imposed November deadline to clinch a trade deal. The planned conclusion of negotiations has been set to coincide with pre-G20 meetings in Brisbane that are being hosted by Australian Prime Minister Tony Abbott, with Chinese President Xi Jinping expected to attend.  (See Bridges Weekly, 17 April 2014)

Although the tariff is not specific to the resource-rich Oceanic nation, it will likely have its greatest impact there, given that coal is Australia’s single largest export to China. 

Surprise in Canberra

China’s decision, announced last Thursday, reportedly surprised Australian officials. While some expressed frustration, others suggested that the episode reinforced the importance of cementing trade ties with Beijing through a bilateral pact. 

Speaking from a meeting of G-20 finance ministers on the sidelines of the International Monetary Fund Annual Meetings, Australian Treasurer Joe Hockey said he was “surprised” at China’s “unilateral” and “harm[ful]” decision. 

Australia has a “right to respond” during trade negotiations, he added. 

Meanwhile, Trade Minister Andrew Robb took a more conciliatory tone, saying that he would seek clarity from Beijing, but that there would always be a place for Australian coal in China.

Robb also added that the issue “highlights the importance of concluding high quality FTAs.”

An Australian trade source told the Reuters news agency that they still thought the trade deal could establish a zero-tariff regime on Australian coal imports.

Domestic mining sector

The move comes as China’s domestic miners struggle to adjust to price drops and cost increases, and the decision has been read by analysts as an effort to help the industry.

Whereas years of explosive growth fueled a coal boom both domestically and in countries such as Australia, a slowing in the Chinese growth rate and an increased emphasis on renewables has seen the global coal supply overtaking demand. (See Bridges Weekly, 9 October 2014)

In recent months, coal prices have plummeted, hitting Chinese producers particularly hard; estimates suggest that more than two-thirds of Chinese coal operations are currently unprofitable.

Next steps for trade talks?

Although declining coal prices suggest waning Australian influence, experts are split over the implications of the recent tariff on FTA negotiations. 

Some have suggested that Beijing’s worries over coal could provide Canberra with leverage on other key issues, such as agricultural products. If China refuses to drop tariffs, former Australian trade ambassador Alan Oxley told the Australian Financial Review, “it helps Robb stare at them more vigorously over agriculture.”

Others, such as University of Sydney professor Mark Melatos, have commented to the Financial Times that the new tariff is evidence that Beijing is “losing interest” in a trade pact, or trying to exploit the fact that “Australia wants this deal more than China.”

Political implications

Having tied his first term inextricably to the success of the coal industry and enhanced trade with Asia, Prime Minister Abbott could face a significant setback if FTA talks sour.

Abbott, who famously led the first successful effort to repeal a national carbon tax earlier this year, called the Chinese coal tax a “hiccup” on Friday, before assuring media that negotiations would continue on schedule. The Australian premier also championed the repeal of the country’s controversial mining tax, which went through just last month. (See Bridges Weekly, 17 July 2014 and 10 September 2014, respectively)

On Monday, Abbott remained upbeat as he attended a mine opening in Queensland.  “Coal is good for humanity,” Abbott proclaimed, adding that he believed coal would be the world’s principal energy source “for many decades to come.”

China’s decision also comes at a time when experts have been calling for a transition to a low-carbon economy, such as in the New Climate Economy Report released ahead of the UN Climate Summit last month. (See Bridges Weekly, 25 September 2014)

Countries are looking to agree on a binding global climate deal by the end of next year, to take effect from 2020 onward. The policies of China and Australia, both major greenhouse gas emitters, have thus been watched closely in this context. For its part, the Asian economy has also been taking steps to reduce pollution and increase spending on cleaner energy sources.

Back in Australia, another fight on the carbon subject could soon be on the horizon, with Bill Shorten – leader of the main opposition Labor Party – pledging to push for carbon pricing policies during the next federal election campaign. (See related story, this edition)

Numbers on coal

Environmentalists have expressed outrage by the carbon and mining tax repeals, while opponents of these taxes have highlighted the important role coal plays within the Australian economy.

Last year, China imported over 61 million tonnes of Australian coal.  Meanwhile, the total value of trade between Australia and China stood at US$120.2 billion, making Australia China’s second-largest trading partner.

Should the recently-confirmed tariffs persist, coal analysts in Beijing estimate that pricing issues might cut annual Australian coal production by up to 20 million tonnes.  In the last two years, 12,500 Australian mining jobs have already taken a hit, largely as a result of depressed prices.

ICTSD reporting; “China’s push for coal import tariff could cost Australian mining jobs,” ABC NEWS AUSTRALIA, 10 October 2014; “UPDATE 2-Australia miners push for China tariff relief for battered coal sector,” REUTERS, 10 October 2014; “Australia hit by China coal tariff move,” FINANCIAL TIMES, 10 October 2014; “Abbott vows to fight China coal tariffs,” THE AUSTRALIAN FINANCIAL REVIEW, 11 October 2014;  “Tony Abbott says ‘coal is good for humanity’ while opening mine,” THE GUARDIAN, 13 October 2014; “Crucial final stages of free trade talks between Canberra and Beijing,” COAL GURU, 11 October 2014; COLUMN-China coal tariff sends message to cut supply: Russell,” REUTERS, 9 October 2014; “China’s new import tariff the last straw for struggling coalminers,” THE AUSTRALIAN, 11 October 2014.

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