TNAG-1173-FCO40-1465-Future-of-Hong-Kong-special-study-by-FCO-for-the-Prime-Minis-1982 — Page 8

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STUDY ON FUTURE OF HONG KONG (HK)

1. Mr Meadway's letter of 6 August deals with HK and the GATT. This note considers (i) what possible trading rights might be open to HK under agreements other than the GATT; (ii) the effects on some wider trading issues of possible changes in the current pattern of UK/China/HK relations. Quite a lot of (ii) is unavoidably speculative. The note tries to follow the format of possible changes (a) and (b) in the schema drawn up for a trade annex to the eventual report.

(i) Trading Rights

2.

China has a number of bilateral trade agreements (BTAs) with various countries or groups which are also GATT contracting parties (CPs). We have no exhaustive list or set of copies) of these BTAS. The main ones are with the US (1979) and the EC (1978). Both contain MFN clauses - which appear, though different in detail, to accord substantive MFN treatment and other benefits: whether these are more or less extensive than the GATT's would need careful study. We have no copy readily available of the trade agreements between China and Japan (a GATT CP) but there can be no doubt that China benefits from MFN treatment. China has a trade agreement with Sweden granting mutual MFN and other rights. At a guess, it is unlikely that there is any major lacuna in the network of trade agreements which China has with her trading partners. The US and EC together take about 60% of HK's exports.

3. Both the US and EC agreements eg refer simply to China with no territorial definition. So under scenario (a) HK would presumably benefit from these agreements as part of China. In the absence of territorial clauses in the main agreements it is not possible to say whether they would still apply to HK under option (b). That would not matter so long as HK had sufficient autonomy to be deemed to be a CP under Article XXVI 5(c) of the GATT. The only issue then is whether Chinese SAR status could have the result of HK's finding herself in a lacuna, obtaining eg MFN treatment neither by virtue of the Chinese BTAS nor the GATT: that seems a theoretical rather than a real danger.