TNAG-1401-FCO40-1873-Future-of-Hong-Kong-continued-participation-in-the-General-A-1985 — Page 66

CONFIDENTIAL

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because a State Trading Country can assume the commitments entailed by the GATT without promising anything of value to its trading partners. I agree that if the Chinese economic system develops sufficiently towards market orientation and consumer choice as you say, (including the right of private consumers to choose foreign goods) then things would be different. But I think it has yet to be demonstrated that the Chinese economic reforms will go quite that far. In the meantime I am afraid we do not take any particular comfort in the fact that some regions appear to be exercising increasing autonomy over imports: so long as in China the decision whether to import something is made by the public authorities, while in the UK any such intervention is forsworn under Treaty commitments, we do not consider that the relationship can be a balanced one.

5.

I hope that explains more clearly the nature of our worries. We will look again at our paper to see if it can be brought out more clearly. You will see that it has nothing to do with the size or potential of the Chinese market, which will be there whether or not China joins the GATT.

6.

The reason we attach so much importance to these considera- tions is that we have been giving some thought to the causes of the creeping protectionism which has been causing so much anxiety every- where, and of which we are not entirely innocent ourselves. The justification given for protectionist measures in breach of the GATT rules is always that the rules are unfair. Unfair in the case of Japan because they do not seem to lead to any genuine opening of the Japanese market; unfair in the case of the developing countries which were expressly exempted from the need to reciprocate concessions, at a time when no one anticipated the rise of the NICs. Our judgment is that Ministers in this country, and in others similarly placed, will be able to defend keeping the rules only if these sources of unfair- ness are removed. Too much weight has already been put on the system and it is creaking badly.

In theory the existing State Trading Countries in the GATT add to these strains. In practice they have not been big enough or com- petitive enough to matter. China, a quarter of mankind, would surely be different?

7.

Copies go to the recipients of yours.

Yours sincerely

Tony

A J Lane

CC:

A Montgomery Esq, UKMIS GENEVA Miss R Spencer, UKREP BRUSSELS Mr Braithwaite

Mr Renwick

Mr Elliott, FED

Mr Galsworthy, HKD

Miss Wilmshurst, Legal Advisers

Mr Broadbent, Economic Advisers

Mr Jay, Cabinet Office

Mr Williams Dep Sec Mr Roberts Dep Sec

Mr Pryor ITP

Mr Madelin ITP

999.20

PTO..