TNAG-1402-FCO40-1874-Future-of-Hong-Kong-continued-participation-in-the-General-A-1985 — Page 58

CONFIDENTIAL

Implications of Chinese Accession

13. China is potentially a much more significant participant in international trade than the East European GATT contracting parties. Though her present share of world trade is small, her potential is vast (see Annex A) and will for the fore- seeable future be centred in areas of particular sensitivity in international trade, particularly for the developed countries (eg textiles, light industrial goods).

14. The present rules governing China's exports to the EC are less far-reaching and in general more restrictive than GATT rules. The chief practical effects of Chinese accession, for Britain and other EC members, would be on our ability to protect our markets from imports of certain categories of Chinese goods by means of quantitative restrictions. China already receives Most Favoured Nation treatment in the 1978 EC/China Trade and Economic Co-operation Agreement. Although this is looser than either the full provisions of GATT or

even the restrictive protocols of Accession to the GATT signed by present State Trading members, existing EC legisla- tion for taking safeguard action against imports from China (Regulation 1766/82) is tougher than the corresponding Article XIX of GATT, in that it provides for action to be taken more quickly and does not stipulate that safeguard quotas be based on traditional trade. Moreover, while there has been a

certain amount of liberalisation and relaxation of EC quotas on Chinese imports since 1978, there is still a fairly long list of products subject to quota. Some goods (eg TV sets) may not be imported at all. EC countries have so far been unwilling to respond generously to China's request for increased market access, given the sensitivity of many of the sectors of Community industry threatened by the Chinese

imports.

14 bis The EC would not be alone in finding itself less adequately protected against the damaging consequences of China's non-market operation of its economy. There would be similar consequences for other GATT members. The cumulative effect could be damaging to a trading system which is already under strain. It is already