TNAG-1056-FCO40-1306-Trade-relations-between-Hong-Kong-and-the-EEC-1981 — Page 38

CONFIDENTIAL

to bolster this international mechanism.

Specifically, he wished to have "one more run" at the safeguards issues and over the longer term to work towards a framework for trade liberalisation in services.

The United States felt that the safeguards. issue could not be tucked away as intractable, and an ad hoc case law development of Article XIX did not seem to be a satisfactory alternative. A formal structure was needed.

Senator Brock felt that an internationally agreed policy for trade in services would increasingly be needed. It was of particular importance to the United Kingdom and United States, for whom services accounted for some 40% of export earnings. He agreed that international agreement would be a daunting task.

There were problems of definition, and different stances between domestic service sectors. For the present, he would be content if he were confident that the issue were being analysed to identify possible opportunities for progress on a common front. His own office was now working on the problem, as were members of the OECD Secretariat. He hoped that serious work could begin as a result of the mid-June OECD Ministers Meeting. He was informed that the Department was also working on the problem, but that we saw dangers in pressing too hard through the OECD. It could be counter-productive amongst Third World GATT members subsequently. Senator Brock agreed that the issue would have to be dealt with delicately, but saw an equal danger in inactivity at a time when trade barriers against services seemed increasingly likely.

Trade Relations with Japan

In response to the Secretary of State, Senator Brock said that it was important to open up the Japanese market for imports. This, rather than restraints on Japanese exports, was the United States' prime concern. The "Japanese problem" should, however, be dealt with at a general level against the principle of the need for "the orderly development of trade within rational parameters". Although they might be the largest, the Japanese were not the only nation posing problems for free trade. Chinese textiles, and even some elements of EC trade (eg the CAP) could also be considered. The Ottawa Summit, and subsequent action, should concentrate on re-affirming free trade principles, and avoid obviously "ganging up" on Japan. To "scapegoat" Japan could obscure this general principle, and almost certainly be counter-productive given the attitude of Japan and of Mr Suzuki in particular.

The Secretary of State felt that the Japanese problem" had to be recognised at the Ottawa Summit, and co-ordinated EC/North American action was important. He recognised the need to avoid the danger defined by Senator Brock of "cartelising" the world. But it was essential to temper the pace of change being forced on some sectors of industry by the Japanese. Opening up the Japanese market was, of course, desirable. But any increased import penetration in the Japanese market was likely to be spread across the breadth of industry, whilst the Japanese export strategy appeared to concentrate on market dominance in specific sectors. VRAS provided some kind of holding operation, but in the longer term were inadequate. A climate of "phoney free trade" was created. It had to be recognised that the Japanese appeared to be acting contrary to the spirit, if not the letter, of the GATT.

CONFIDENTIAL