CONFIDENTIAL
167515
MDLOAN 3487
TRADE 11.
Both the EC and the US, but not Japan, have large deficits with China. Lord pointed out that this was partly because production had shifted to the, mainland from Taiwan and Hong Kong, so that the US trade deficit with all three had not changed much. Nevertheless the US gave a high priority to securing Chinese implementation of existing agreements on market access, IPR and textiles.
12. The UK saw the GATT application as offering a degree of Leverage on China. We should emphasise the need for China Co award major contracts on the basis of commercial, not political, criteria if they expected to join GATT. ALL agreed that GATT entry should be decided on the basis of China's meeting the GATT criteria, although Coles suggested that in the real world political factors were bound to intrude. The EC was willing to contemplate prior Taiwanese entry, but the US and Japan had yet to take a position. The US warned that export of products from Chinese prison camps could quickly become an emotive domestic issue. They did not believe that the volume of such exports was huge, but they had a bilateral process for managing the issue with the Chinese.
DEFENCE AND SECURITY
13. None of the participants had plans to change its ban on arms sales. None saw China's military modernisation as an immediate threat, although Japan warned that if the present pace was sustained for 5 - 10 years, it could upset the regional balance. Blanchemaison said that in the long run China clearly intended to assert sovereignty in the South China Sea: its claim could be activated at any time. Japan and the US welcomed the emergance of a forum for regional security dialogue which China had been invited to join. The US envisaged also an academic forum in NE Asia which might eventually involve Governments.
14. The US planned to resume Low-profile military contacts - meetings of uniformed and civilian personnel, Chinese students at staff colleges, but not ship visits or visits by Chiefs of Staff. Japan had agreed to hold pol-mil talks, but rivalry between the Chinese MFA and MOD meant that they would not take place until next year. The UK was considering possible pol-mil talks.
France and Germany were not.
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