By Colin Packham
SYDNEY, Oct 16 (Reuters) - Chinese cotton mills have been ordered to stop buying Australian cotton, an Australian government source briefed on the matter said on Friday, the latest sign of worsening trade relations between the two countries.
China is the biggest buyer of Australian cotton and the trade worth was worth about A$900 million ($637.4 million) during the 2018/19 crop year.
Australia's relationship with China has soured in recent months amid Canberra's allegations that China was meddling in its domestic affairs. Relations worsened when Prime Minister Scott Morrison called for an independent inquiry into the origins of the COVID-19 pandemic, which originated in the Chinese city of Wuhan.
"The millers essentially get a quota they can import, and essentially they're being told they might not get their quota next year if they buy our cotton," an Australian government source, who was briefed on the matter by Australian officials in China, told Reuters.
If Chinese millers continue to buy from Australia they could be hit with a 40% tariff, the source said.
The source declined to be named as he is not authorised to talk on the matter.
Australia's Minister for Trade Simon Birmingham said in an email that the government is "aware of changes in exports conditions" for cotton.
China's embassy in Australia did not immediately respond to requests for comment.
Birmingham warned China against taking steps to cut trade.
"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," he said.
The suspension of cotton purchases comes just days after Canberra scrambled to confirm reports that China ordered the suspension of coal purchases from Australia. L4N2H413V
China in May imposed anti-dumping and anti-subsidy duties totalling 80.5% on Australian barley, effectively stopping a billion-dollar trade in its tracks. China on Tuesday also said it had begun an anti-dumping probe into Australian wine imports. L4N2FJ1A7
($1 = 1.4120 Australian dollars)