TNAG-1401-FCO40-1873-Future-of-Hong-Kong-continued-participation-in-the-General-A-1985 — Page 169

CONFIDENTIAL

CHINA AND THE GATT

Introduction

1.

China has recently acquired the status of observer in the GATT and has announced her intention of applying eventually for

full GATT membership. This paper considers what the UK reaction

to this should be.

2.

The paper suggests that:-

(i)

There are political reasons for Chinese membership (paragraphs 3-4).

(ii)

The economic arguments are against membership: China is a powerful economy (para 5) whose membership of the GATT would impose additional oblgiations on the UK (paragraphs 6-10) and significant strain on the GATT generally (paragraphs 11-12).

(iii) There is a scope for acting now to reduce the likelihood of an application. However, if China applies, it will be hard to escape her eventual member- ship (paragraph 13).

(iv) Nonetheless, there is scope for reducing the adverse consequences of China's accession by negotiating

special terms or, in the last resort, by invoking the

right of GATT Contracting Parties not to apply GATT rules to new members (paragraphs 14-18). The important thing is to think through carefully the special terms we want: and then to develop a clear strategy for getting

them.

GATT Membership, the "Open Door" and State Trading

3. China's foreign policy stance underpins the slow but steady

progress of internal economic reform in recent years. As China emerges from post-revolutionary isolationism, and demonstrates her potential to become a major trading nation, so she has

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