China-Australia trade deal does not oblige either country to continue buying goods, lawyers say

China and Australia are not obliged to trade with each other under World Trade Organization rules or their free-trade agreement, trade lawyers say

Canberra accuses China of breaching the letter and spirit of the free-trade deal, while Beijing has taken issue with Australia’s rejection of investments

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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. Photo: EPA-EFE

Published: 4:30am, 15 Dec 2020Updated: 5:37am, 15 Dec 2020

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.”