TNAG-1402-FCO40-1874-Future-of-Hong-Kong-continued-participation-in-the-General-A-1985 — Page 57

CONFIDENTIAL

10.

The commercial practices of a state trading country are in the last analysis incompatible with the principles underlying the GATT system. GATT is an organisation which lays down rules for an open, market-oriented trading system. Difficulties are bound to arise. when state trading countries seek to subscribe to it. Concepts like "subsidy" and "dumping", which are important in a GATT context, have no real meaning outside a market economy. And in a country where prices are not determined in the market, and where day- to-day administrative decisions can exclude imports far more effectively and less openly than a tariff, GATT "obligations" in the form of MFN commitments, bindings, etc, are meaningless, and hence of no value to other contracting parties.

11. Nonetheless, some state trading countries are members of GATT. Czechoslovakia (at that time a liberal economy) was

a founder member. Others

Others (eg Poland, Hungary, Rumania) have subsequently acceded on special terms designed to resolve at least in part the inherent contradictions outlined above. The Protocols of Accession which defined these special terms have included provisions for specified annual increases in imports by the state trader, and the progressive elimination of quantitative restrictions by existing developed contracting parties. They have not in practice produced satisfactory results, but this has not really mattered so far: the East- West trade of the East European economies is too small to have had any significant disruptive effect on the GATT system. The advantages for the West in participation by individual state traders (encouragement of more open economic policies education in the wyas of the liberal market, incentives to economic and political diversity in the Eastern Bloc), are political rather than commercial, and of course intangible. Hungary, for example, has been assiduous in claiming the trading advantages from the Community and others which she considers her due as a signatory to the GATT; but acute shortage of foreign exchange would have made it impossible for her to live up to her obligations to increase trade with the West even if she had been willing to do so, and even had her own quota restrictions on trade with Western countries been substantially reduced or dismantled.