China and Australia can cut trade ties at any time if either country can justify the action under rules set by the World Trade Organization (WTO), despite signing a free-trade agreement together, lawyers say. But severing trade has wider political and economic implications that can undermine international cooperation and could lead to decoupling, analysts and politicians added. Questions over whether the two nations are obliged to trade with each other or if either had breached the China Australia Free Trade Agreement (ChAFTA) following eight months of tensions became more pointed last week ahead of a possible five-year review of the trade pact. Canberra accused Beijing of breaching the “ letter and spirit ” of the agreement and its WTO obligations, while Beijing returned fire saying Australia had rejected 10 Chinese investment projects under the pretext of ambiguous national security interests. “ChAFTA, like most free trade agreements, does not oblige either party to the treaty to purchase goods or services from the other Elizabeth Sheargold But experts said neither country appears to have violated specific rules of the trade pact. The deal cannot be breached as it is not a binding contract, but a mutually agreed upon tariff schedule and set of trading guidelines and rules. “ ChAFTA , like most free trade agreements, does not oblige either party to the treaty to purchase goods or services from the other,” said Elizabeth Sheargold, a postdoctoral research fellow at the University of Wollongong School of Law in Australia. “Instead, in ChAFTA both countries committed to eliminate or lower some of the barriers to trade such as tariffs or import quotas.” At the WTO level too, there are no rules that force countries to trade with each other, said Henry Gao, trade law professor at Singapore Management University. Under both ChAFTA and WTO rules, neither country can impose discriminatory restrictions on imports unless they can be justified, University of Sydney ChAFTA expert Jeanne Huang said. Exceptions include protecting consumers against contamination or securing critical supplies, including goods like medical products. Another exception would be an “emergency in international relations”, such as the sanctions Australia imposed on Russia over the Russia-Ukraine conflict in 2014, which were extended the following year. But the diplomatic spat between Australia and China did not reach the threshold, Huang said. Similarly, Beijing’s imposition of anti-dumping duties on Australian wine recently was allowed, Gao said. Although China’s anti-dumping investigation is ongoing, WTO rules allow countries to impose provisional measures to level the playing field while they probe trade that is suspected to have hurt domestic markets. And so far, other trade actions enacted by China have been linked to pests, contaminations and shipment inconsistencies. China began imposing restrictions on Australian products in April, when Canberra drew the ire of Beijing for calling for an international inquiry into the origins of the coronavirus without bilateral consultation. Earlier this month, Australian trade minister Simon Birmingham told a Senate hearing he was concerned China had not kept to its commitment to open and multilateral trade under WTO obligations. China, meanwhile, has highlighted its unhappiness with Australia’s rejection of a number of its intended investments. ChAFTA promised to remove export barriers between the two countries and liberalise screening thresholds for Chinese private sector investment in Australia, effectively putting it on an even footing with Australia’s other major trading partners. As the conflict stretches on, questions have been raised about the future of the two nations’ relationship, with experts saying both bear some responsibility for the current state of affairs. While not strictly economic coercion, China has exerted economic pressure by restricting some Australian exports to meet its political needs, said Hans Hendrischke, professor of Chinese business and management at the University of Sydney Business School. Tianlei Huang, research fellow at the Peterson Institute for International Economics (PIIE), said Australia – under pressure from the US and domestic voters to “act tough” on China – failed to approach the relationship with sufficient nuance. “Canberra clearly lacks enough understanding of what Beijing views as its core interest,” he said. “Beijing views Australia’s behaviour on Hong Kong and Taiwan, for example, as having touched its bottom line. The era in which politics and commerce can be treated separately in dealing with relations with China has come to an end Tianlei Huang “The era in which politics and commerce can be treated separately in dealing with relations with China has come to an end.” Two Australian politicians from both major parties, Tim Watts and Dave Sharma, said last week in two papers penned for the think tank China Matters that decoupling with China would be self-sabotage and called on both countries to resist it. PIIE senior fellow Jacob Kirkegaard said Australia was a casualty of past commercial and political decisions, “which as China grows more assertive and the US-China rivalry accelerates, may no longer be viable”. “I don’t think there is much Australia can do,” he said. “Either it changes policies on a host of issues towards China, or suffer the commercial consequences.”