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FM WASHINGTON
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TELNO 2658
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INFO ROUTINE PEKING, HONG KONG, BTC HONG KONG, DTI, ACTOR
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MY TELNO 2624: US/CHINA: TRADE ISSUES
1.
WE HAVE DISCUSSED WITH HEAD OF HKETO POSSIBLE FURTHER INTERVENTION BY HIM OR US IN THE SPECIAL 301 (INTELLECTUAL PROPERTY) CASE, IN WHICH THE US ADMINISTRATION IS LIKELY TO DECIDE ON ABOUT 26 NOVEMBER TO RETALIATE AGAINST CHINA. THE USUAL FORM OF
RETALIATION IN SECTION 301 CASES IS PROHIBITIVE TARIFFS (GENERALLY 100%) ON A RANGE OF PRODUCTS WITH A TRADE VALUE ROUGHLY EQUAL TO LOST US EXPORT OPPORTUNITIES. THERE IS A PRESUMPTION THAT, WHERE POSSIBLE, PRODUCTS SELECTED FOR RETALIATION WILL BEAR SOME RELATION TO TRADE SECTORS AFFECTED BY THE DISPUTE.
2.
WE UNDERSTAND THAT MASSEY (THE CHIEF OFFICIAL AT USTR
CONCERNED WITH US/CHINA TRADE) WILL STOP IN HONG KONG ON 19 OCTOBER, EN ROUTE TO PEKING, FOR INFORMAL DISCUSSIONS WITH DONALD TSANG, DIRECTOR-GENERAL FOR TRADE IN THE HONG KONG GOVERNMENT.
3. WE AND HKETO HAVE EARLIER PUT TO STATE DEPARTMENT AND USTR THE GENERAL POINT THAT ANY RETALIATION SHOULD, SO FAR AS POSSIBLE, AVOID DAMAGING THE TRADE OF HONG KONG. US OFFICIALS HAVE ACKNOWLEDGED THE FORCE OF THIS, BOTH PUBLICLY AND PRIVATELY, WHILE WARNING THAT SOME COLLATERAL DAMAGE'' MAY BE UNAVOIDABLE. USTR HAVE SUGGESTED TO US THAT RETALIATION WILL FOCUS ON ALL CHINESE STATE-TRADING COMPANIES IN ORDER TO PUT PRESSURE ON THE CHINESE
GOVERNMENT WITHOUT DAMAGING SMALL-SCALE PRIVATE CHINESE BUSINESSES.
4.
WE EXPECT THE LIST OF PRODUCTS PROPOSED FOR RETALIATION TO ISSUE FAIRLY SOON, THOUGH PERHAPS NOT (NOT) NOW UNTIL AFTER THE USTR TEAM RETURN FROM PEKING ON 28 OCTOBER. WE HAVE CONSIDERED WHETHER TO RECOMMEND INTERVENTION WITH THE ADMINISTRATION BEFORE THE LIST IS ISSUED, TO SUGGEST ITEMS THAT SHOULD COR SHOULD NOT) BE ON IT. WE CONSIDER THIS UNLIKELY TO BE EFFECTIVE, AND POSSIBLY COUNTER-PRODUCTIVE. THE AMERICANS MIGHT PUT PRESSURE ON US OR HKG TO INTERVENE WITH THE CHINESE. THE LATTER MIGHT VERY WELL HEAR OF AND REACT ANGRILY TO AN ATTEMPT BY US TO ENCOURAGE TRADE ACTION BY
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