Confidential
SECRETARY OF STATE'S VISIT TO WASHINGTON, 24-25 MARCH
BACKGROUND
China MFN/Hong Kong
1. Most Favoured Nation status (MFN) enables Chinese imports into the US to benefit from preferential tariffs. China's MFN status has to be renewed by the President on an annual basis. Since the Tiananmen Square incident in 1989, there has been pressure in Congress to use MFN as a lever on China to improve its human rights record by placing conditions on its renewal. MFN was last renewed by President Bush on 2 June 1992, who exercised his right of veto on an MFN conditionality bill sponsored by Congresswoman Pelosi.
2. During the election campaign, Mr Clinton was very critical of President Bush's policy on China. There is expectation, particularly within Congress, that he will be prepared to use MFN as a lever on China. On the other hand, there is considerable pressure from domestic business interests not to cancel China's MFN status. US Secretary of State signalled recently that the Administration wished to work with Congress to devise a strategy on MFN which would take account of their concerns about China's human rights record, arms proliferation activities and trade surplus, but without isolating China. We understand the Administration's current thinking is that MFN would be renewed in June 1993, with broad conditions for renewal thereafter.
3.
Our policy, strongly endorsed by the Governor, is a two track one. In public and in contacts with the Clinton team and the new Congress we are arguing for unconditional MFN renewal to ensure that they understand that anything less would severely damage Hong Kong's economy. In private, however, we are maintaining a discreet contact with some members of the Administration and giving thought to what sort of token conditions would best protect Hong Kong.
China: Recent Developments
4.
To
The 8th National People's Congress began on 15 March. date, it has produced no surprises. Deng Xiaoping's policies of accelerated economic reform have been endorsed and the growth forecast for the current year has been raised from 6 to 8-9%. The most radical aspect of the Congress so far has been the unveiling of plans to restructure many of the existing ministries and replace the socialist command economy by a combination of macroeconomic controls and a socialist market economy. The plans will involve a reduction of up to 25% in the number of Chinese officials and there are indications that the
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Confidential