TNAG-1493-FCO40-2051-Future-of-Hong-Kong-General-Agreement-on-Tariffs-and-Trade-(-1986 — Page 13

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CONFIDENTIAL

Background and Arguments

But

3. The Chinese Government have made it known for some time that they intend to resume their GATT seat, vacated by the Nationalists in 1950. They started discussions with the GATT Secretariat on this in late 1982 and were admitted as an observer to GATT Council meetings in November 1984. The EC welcomed this and has made polite noises about Chinese overtures to become a full GATT member, while stressing that negotiations will not be easy. there has been very little discussion so far within the Community on the substantive issues, in particular China's insistence on being given additional privileges as a result of her developing country status. China would be also the largest state-trading country to accede to GATT. The EC will in due course have to consider its position, and we shall need a more developed position when discussion does begin.

4. The arguments in favour of Chinese membership are:

5.

Accession to GATT would help to reinforce outward- looking tendencies in the Chinese Government: a rebuff would do the opposite.

We have compelling political interests in maintaining a harmonious relationship with China, because of the need for smooth implementation of the Hong Kong agreement: this would be jeopardised if we were thought to be frustrating Chinese membership.

Against this it has to be recognised that:

- Chinese accession might constitute a precedent for the USSR, who have also expressed interest in joining GATT: their accession would effectively destroy the GATT as a free-market body.

- China would be by far the most significant state-trading country to accede to the GATT, whose fundamental provision (that tariffs should be the main regulator of trade) is incompatible with the idea of a command economy.

Chinese accession as a developing country would reinforce powerfully the anti-graduation lobby in GATT.

CONFIDENTIAL