By Lewis Jackson and Dominique Patton

SYDNEY/BEIJING (Reuters) -Australia on Friday used China’s decision to drop anti-dumping tariffs on its barley imports to call for the end to all remaining trade restrictions, led by wine, as commercial ties between the two trading partners edge towards normalisation.

China’s Ministry of Commerce said on Friday anti-dumping and anti-subsidy tariffs on Australian barley would end on Saturday, roughly three years after the 80.5% duties first cut off what was once as much as a A$1.5 billion ($986.25 million) annual trade and led Canberra to file a case at the World Trade Organization (WTO).

The barley decision follows the resumption of trade in products like coal and timber and puts a spotlight on the few remaining Australian products restricted by China, including wine, which also faces tariffs, as well as unofficial restrictions on lobster and meat exports from certain abattoirs.

Australian Trade Minister Don Farrell said on Friday that Chinese restrictions affecting roughly A$20 billion of annual trade as of last May had shrunk to hit about A$2 billion of exports.

“We intend to use this process (barley) as a template for resolving the issue in respect of wine, which is still ongoing… as we seek to resolve all of those outstanding issues,” Farrell told reporters after the decision.

Relations between the two major commodity trade partners had deteriorated in 2020 after Australia called for an inquiry into the origins of COVID-19, triggering reprisals by Beijing including anti-dumping duties on Australian wine and barley.

Tensions between Canberra and Beijing have eased since the centre-left Labor party won power in Australia last year, with Chinese purchases of Australian coal and timber resuming this year.

The U.S. Trade Representative’s office, which has sided with Australia in the trade dispute, declined to comment on China’s move to reduce barley tariffs.

The barley decision also smoothes the way for a potential trip to Beijing later this year by Prime Minister Anthony Albanese, although no date has been set.

The barley tariffs will be dropped starting on Saturday, China’s Ministry of Commerce said, noting industry players had reported increasingly robust beer market demand and domestic barley supply could not meet consumption needs.

The Australian dollar was up 0.34% to $0.65715 after the announcement, having risen to as high as $0.65875 earlier in the session, recovering from a two-month low it hit on Thursday.

POSITIVE STEP FOR WINE

Australia’s wine trade with China was once worth A$1.2 billion annually, according to industry group Australian Grape & Wine, whose CEO Lee McLean said the end of the barley tariffs was a positive step.

Wine producer Treasury Wine Estate’s shares reversed earlier declines to close 2.7% following the barley decision against an otherwise flat market.

The Australian government said it would end its barley dispute at the WTO but had not yet dropped a separate complaint against China’s tariffs of up to 218% on Australian wine.

BARLEY MARKET SHIFTS

Rabobank senior grains analyst Dennis Voznesenski said the barley decision would be positive for Australian prices and farmers with malt quality barley were especially likely to attract a premium over recent prices.

“Market players who are going to be shipping barley to China may ask for a premium due to risks involved as there are going to be some concerns, if for example, China goes back on its decision,” he said.

Grain Producers Australia CEO Colin Bettles welcomed the removal of tariffs, calling it a win for Chinese consumers and industry as well as local exporters.

Chinese buyers had turned to Canada, France and Argentina to replace Australian barley supplies over the last three years, while Australian sellers shifted exports to feed barley markets in the Middle East.

Those trade flows are likely to shift again after China drops the tariffs, with its barley buyers expected to begin purchases of the new Australian crop harvested in October for arrival by year-end.

($1 = 1.5209 Australian dollars)

(Reporting by Dominique Patton and Beijing Newsroom and Lewis Jackson in Sydney; Additional reporting by Naveen Thukral and Ankur Banerjee in Singapore and Andrea Shalal in Washington; Editing by Kim Coghill, Jamie Freed and Deepa Babington)

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