The World Trade Organization agreed on Friday to set up a dispute settlement panel over tariffs China slapped on imports of Australian barley.
Australia filed an appeal to the WTO in December, saying China's decision to impose anti-dumping tariffs on its barley violates international trade rules.
The two countries have been holding discussions in accordance with the WTO's dispute settlement procedures, but failed to reach a solution.
The establishment of a panel is the next step in the WTO's dispute resolution process.
Australia says it will use the WTO system to solve its differences with China and to protect the interests of its barley producers.
China says it is confident that its duty measures are consistent with WTO requirements.
Ties between Beijing and Canberra have soured since April last year, when Australian Prime Minister Scott Morrison called for an independent inquiry into the origins of the coronavirus.
In response, China restricted imports of Australian barley, wine and meat products.