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China’s cotton mills told to avoid Australian exports

“Impeding the ability of producers to compete on a level-playing field could constitute a potential breach of China’s international undertakings, which would be taken very seriously by Australia.”

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Cotton Australia first became aware of discrepancies at the start of this week and has been consulting with Australian exporters and Chinese mills to establish if the verbal directions were more than market rumours.

“It has become clear to our industry that the National Development Reform Commission in China has recently been discouraging their country’s spinning mills from using Australian cotton,” Cotton Australia CEO Adam Kay and Australian Cotton Shippers Association chair Michael O’Rielley said in a joint statement on Friday.

Australia has exported cotton to China for decades and the crop is one of Australia’s top agricultural exports to China. In good seasonal conditions Australian cotton exports can be as high as $2.5 billion a year, with most of the earnings coming from China.

“About 65 per cent of our crop goes to China, so they’re very important to us and we’ve built that relationship up,” Mr Kay said.

“For us the disappointing thing is those great relationship that we’ve worked hard on to build up. Even in the 1970s our leading farmers went over and helped the Chinese people with their cotton production and helped them get their industry going.”

China’s cotton industry has been ramping up local production to stimulate the country’s textile sector. The quotas are designed to ensure local producers are protected from international competition. A separate 40 per cent tariff is also on the cards if mills defy the quota and continue to buy Australian cotton.

More than 80 per cent of China’s cotton comes from Xinjiang, where up to 1 million members of the Uighur muslim minority have been detained in re-education camps.

Trade Minister Simon Birmingham: "China should rule out any use of discriminatory actions against Australian cotton producers."

Trade Minister Simon Birmingham: “China should rule out any use of discriminatory actions against Australian cotton producers.”Credit:Alex Ellinghausen

Cotton producers are confident of being able to diversify their exports into Vietnam, Bangladesh and Thailand if the trade stoush persists but could face losses from having to divert their crop.

Australian cotton growers had already been left millions of dollars short in July after the collapse of a Chinese importer left thousands of cotton bales stranded.

Chinese merchant Weilin had committed to buy up to half the Australian cotton crop this year, which for the 2019-20 season came in at 600,000 bales. Weilin entered voluntary administration in July.

The company’s directors, Zhang Lin and Liu Wei, also own Weifang CHN-Miracle Agricultural Products, based in Shandong in northern China. The company invested more than $200 million in a cotton logistics processing plant to process 500,000 tonnes of lint annually. Large companies in China often have links to the Chinese Communist Party.

The cotton industry is the second key Australian export to report verbal quota restrictions this week. China has been reluctant to issue formal written notices as this could be used as evidence of free trade breaches at the World Trade Organisation.

S&P Platts, the global commodities information platform, quoted sources from four state-owned utilities that said they had received verbal notice from China’s customs to immediately halt Australian coking and thermal coal imports on October 9.

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