TNAG-1491-FCO40-2049-Future-of-Hong-Kong-General-Agreement-on-Tariffs-and-Trade-(-1986 — Page 80

CONFIDENTIAL

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Japan. The former was originally a Cuban retaliation against countries who imposed restrictions on the import of Havana cigars and therefore strictly commercial. The latter is

a historical remnant. When Japan became a CP a host of countries, including the UK, invoked Article XXXV because of anxiety over the threat of Japanese competition. All but Cyprus and Haiti subsequently disinvoked the Article.

4.

This puts the use of Article XXXV in perspective.

5. As regards US practice regarding State traders, the US delegation here referred us to the relevant section of the Trade Act of 1974 (Title iv - copy attached). They have also given us an informal paper (copy attached) which sets out in some detail the status of trade relations between the US and Eastern Europe. The United States still does not have an official position on China's resumption of or accession to GATT membership.

Article XXVI (5) C

6. We have spoken to Linden about paragraphs 1, 2 and 3 of Hong Kong telegram No 2. He repeated his view that Contracting Parties inherit their rights from the metropolitan government who accepted it on their behalf and provided the attached reference from the GATT Draft Analytical Index. This refers to an extract from a 1961 Working Party report on Japan which seems to make the position clear. Not only does it establish case law but it is evident that the Working Party report was adopted, and therefore accepted, by all Contracting Parties.

In addition Linden cited two specific cases which might provide circumstantial evidence. In the first case Kuwait was prevented from invoking Article XXXV against Israel because its then metropolitan government, the UK, had not taken similar action; and in the second case Cyprus inherited (from the UK) an Article XXXV invocation against Japan and still upholds it although the UK

has since repealed its own invocation.

Article XXIV (i)

8.

Linden's office have carried out some research into the drafting history of Article XXIV (i). This was done by Frieder Roessler after he returned from visiting Beijing with Arthur Dunkel. I attach a copy of his paper which seems to be a thorough piece of work. You will see that the precise reasons for the drafting are lost in the mists of time but Roessler is in no doubt of the interpretation insofar as it affects Hong Kong, Linden is happy to endorse these findings.

cc Washington

Hong Kong Peking

Yours

A W Dell

CONFIDENTIAL

sincerely

Дм. lany