CONFIDENTIAL
4
DSR 11C
discrimination. If an appreciation grows that individual
Western countries can be picked off without risk of retaliation,
discriminatory action may become more frequent. Indeed, there
are already signs that this may be happening: the weak LC
response to Indonesia's action against the UK encouraged Mexico
to threaten the UK with similar trade discrimination over
textiles. The strength of Malaysia's determination to adopt
a tougher policy towards the UK may also owe something to the
perception of UK weakness in the face of Indonesia's challenge.
Vulnerability
9. Is the UK more vulnerable to trade discrimination than other
developed nations? Trade represented a higher percentage of
1980 GNP for the UK (26.8%) than for the US (10.4%), Japan
(15.6%) and France (22.0%), but not the FRG (29.0%).
The UK iš
the second largest direct investor overseas after the US
(though the FRG is catching up fast) and around one fifth of
this investment is in LDCs. The pattern of trade also makes
for vulnerability: the UK tends to run trade surpluses with LDCs
while its trade deficits are weighted towards developed countrie
such as the US and Japan (though this is equally true of France
and the FRG). Admittedly North Sea oil makes Britain less
dependent on the Middle East for imports than its fellow members
of the EC. But it remains vulnerable on the export front, as
Saudi Arabia's recent hostile economic action demonstrated, and
could still be subjected to financial pressures.
9. Britain is not the only developed nation to have faced
trade sanctions (see Appendix B). But there are a number of
reasons, apart from Britain's relative vulnerability, why
countries may be more willing to take such action against us.
In the North-South dialogue the UK is seen as more hawkish than
other developed countries, apart from the US, and on specific