TNAG-0237-FCO40-273-Trade-relations-between-EEC-and-Hong-Kong-1990 — Page 105

of Rome after these countries became independent).

5.

More serious, however, are the negotiations at present going on with Spain and Israel which will openly provide for preferential

The arrangements, with only partial cuts in tariffs on both sides. EEC is also talking in terms of offering similar arrangements to Arab countries in the Middle East, including the UAR and Lebanon.

6. It will also be recalled that a couple of years ago the Community were working on a possible "trading arrangement" with other European countries, Including the U.K., which again would have provided for only partial tariff cuts in industrial products, with an "agricultural content". This operation never got off the ground because the French regarded it as a means of postponing indefinitely consideration of the U.K.'s application for membership of the Communities whereas the British and the other Five were only prepared to consider it if it was a definite first step towards full U.K. Membership. The U.S. Government also intervened strongly in Prussels at the time to oppose the proposed arrangement on the grounds that it would create a large new area of preferential trade contrary to the no new preferencs rule of the GATT. This is, however, just what the arrangements with Israel and Spain will do if they go through, as now seems almost certain

7. The ETC's proclivity to conclude preferential arrangements of this sort almost regardless of their compatibility with GATT did, however, receive a setback before Christmas with the GATT examination of their proposals to extend preferences on citrus fruit to all Mediterranean citrus exporting countries. It was not possible for even EEC ingenuity to dress this up as a free trade area under Article XXIV and they therefore requested a waiver under Article XV. This request met strong opposition from the Americans and others; and, when it became clear that they would probably not obtain the required two thirds majority to grant the waiver (which would have been unprecedented in GATT history), the EDC finally climbed down and agreed to withdraw the preferences.

8. You will also recall (papers behind my memorandum No.9/70 of 19 Ja uary) that the U.9. delegation recently made a proposal that an item should be put on the Agenda for the 26th session entitled "Recent and prospective arrangements for exchanges of preferences between developed courtries and between developed and developing countries". Being interpreted this meant consideration of all these REC preferential arrangements, whether dressed up as "association" or "trade arrangements". As it turned out the U.S. were persuaded at one of Long's informal meetings that a confrontation on an issue of this sort at the Session itself was not the best way of dealing with the problem and that, in the first instance at least, they should pursue it on a more informal basis. But it cannot be doubted that we have not heerd the last of this question by a long chalk. Long called it "one of the two or three most difficult problems to be solved by the GATT" (the other two, I would guess, being agricultural protectionism

I guess, being and textiles) and, given its potential, I would not disagree with him in this judgment. Doubtful free trade areas with a few minor developing countries are one thing, but the extension of the concept to include more blatant preferential arrangements with industrialised countries could create tears in the fabric of Article I of the GATT which would be difficult to patch over.

DJCJ/mmm

Distribution:

Director, Hong Kong (3 copies), A.L.j Mr. Buxton, Mr. Abott, UKMIS, Geneva.

Mr. W.8. Carter, Hong Kong Dept., FOO.

A.B.;

A.W.

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