RESTRICTED
बद
MWB 090/4
Paul
Mr AR Paul
Hong Kong Department
CHINA MFN REMOVAL
1.
FROM: S H Broadbent
DATE: 2 May 1991
Ref:
Mr. Cox
Малой ли
CL/MMF393/2
Mr Stores 4/5
Furness
You asked for thoughts on your draft minute of 29 April to Sir J Coles. I have the impression that, of all the factors you mention which increase the likelihood of MFN removal for China this year, US protectionism is the most important. There has been ample opportunity since Tiananmen and its aftermath for the US to revoke MFN status on human rights grounds. To underline this point Carla Hills, US Trade Representative, has recently named China a "Special 301" country whose trade policy is harmful to US interests (along with India and Thailand).
2. MFN removal without protection will undoubtedly hurt Hong Kong as 69% of China's exports to the US pass through Hong Kong to be re-exported. In addition there are the exports of Hong Kong joint ventures in China itself to be added. Hong Kong stands out as an economy which has developed on the principles of free and unrestricted trade access and its secure future depends upon maintenance of this. We are right to argue that it should be protected from third party trade disputes in which it has played no role.
3. How should this be done? Since Hong Kong is so closely linked to the US-China trade relationship any effective shield will substantially reduce the effectiveness of MFN removal. Exempting Guangdong province alone would undoubedly have enforcement problems even if the Americans bought the idea. An alternative to explore might be an exemption for all or part of chinese exports through Hong Kong. Although this would reduce China's exports less, it would at least signal US concerns. It might also be seen as a compromise between full MFN removal and a presidential veto in the United States. Hong Kong would even stand to gain from this shield as if trade was redirected through Hong Kong to dodge non-MFN tariff walls. China's increased dependence upon Hong Kong could be a useful lever.
4.
We will think further about less fanciful ways of mitigating the damage to Hong Kong.
S H Broadbent
RESTRICTED