CONFIDENTIAL
CHINA'S MOST FAVOURED NATION STATUS (MFN)
Background
1. The US's foreign trade policy towards China under MFN
enables the latter's imports into the US, to be exempt from punitive tariffs. MFN is a GATT related concept and allows
China (a non-GATT member) to enjoy the same import tariff
rates on its exports to the US as any GATT member.
2.
A decision on the renewal of MFN has to be taken by the President annually by 3 June in each year. Since Tiananmen
there has been stiff resistance to renewal both in the
Senate and the House of Representatives because of China's
performance in a number of areas including human rights,
intellectual property, and non-proliferation. The Senate
and House have tried both to overturn renewal and to attach
conditions to renewal. The President's decision on renewal
can be challenged in either House or Senate by a two thirds majority vote.
3.
In the past we have lobbied at the highest levels in the
US Administration, and our Washington embassy and the Hong
Kong Government have lobbied on Capitol Hill. Last year the
Prime Minister discussed the issue with President Bush who
said how useful this lobbying had been in the run up to his
decision and there is no doubt that the lobbying contributed to his decision being maintained in the face of subsequent
adverse voting in the Senate and House.
4. If MFN for China is not renewed the effects on Hong
Kong's economy could be very serious. Even conditional
renewal could be damaging as it would bring about
uncertainty in the markets and lead to an erosion of
confidence in Hong Kong as a major trading and financial centre. The US is still Hong Kong's biggest market, and in
1991 re-exports of China origin to the US amounted to
HK$104 billion, representing 19% of Hong Kong's total
NESADH/2
CONFIDENTIAL