CONFIDENTIAL
Background
China Most Favoured Nation (MFN) Status
1.
The prospects for US renewal of MFN status are not looking encouraging this year. Although the President has unconditionally renewed MFN, Congress and the Senate can veto that decision if they are able to muster a two thirds
majority, or they can seek to add onerous conditions on renewal next year. The US trade deficit has expanded enormously, and China now has the third largest bilateral surplus with the US. In addition the US has disputes with China on textile quotas and intellectual property. There are also concerns about China's performance on human rights and fears about China's role in arms proliferation.
2.
Withdrawal of MFN status for China would have serious
effects for the Hong Kong economy because of the huge volume of China/US trade which goes through Hong Kong. Damage to the Hong Kong economy would include loss of USD9-12 bn in trade, perhaps 40,000 job losses and a halving of GDP growth.
3.
Renewal with conditions could also damage Hong Kong as it would introduce uncertainty which would act as a disincentive to investment in the territory.
4. Non-renewal would also damage the extensive US interests in Hong Kong. The US is one of Hong Kong's largest investors with a total investment of about USD 6 bn, involving about 900 US companies, including over 140 factories.
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CONFIDENTIAL