TNAG-1494-FCO40-2052-Future-of-Hong-Kong-General-Agreement-on-Tariffs-and-Trade-(-1986 — Page 14

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DESK OFFICER

INDEX

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Action Taken

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INTERNATIONAL TRADE POLICY DIVISION

DEPARTMENT OF TRADE AND INDUSTRY

1-19 VICTORIA STREET

LONDON

SWIH OET

Telephone Direct dialling) 01-215) 5458

GTN 215)

(Switchboard) 01-215 7877

D A Warren Esq

ECD(E) Department

Foreign and Commonwealth Office

LONDON SW1A 2AH

Dear David,

CHINA AND GATT

8 October 1986

лисобою

(4hph

Arteta im this furth

Thank you for your letter of 16 September, reporting on your meeting with John McDonnell the previous day. As you know, McDonnell called on us here on 19 September. It was therefore very helpful to have had your letter in advance - and also to have the background in Peter Collecott's of 2 April.

2

McDonnell and I also had a long talk, which covered very much the same ground as yours. He emphasised the transition of China towards a mixed economy: the dilemma over China's GATT status (LDC/market economy), and the two-stage approach towards GATT accession based on the Japanese model. We also touched as you did, on the three-tier Chinese pricing system, autonomy, intra-Chinese trade and the Hong Kong implications. I shall not rehearse all of this.

15/1

3 I should however like to mention as a supplement to your letter some of the points McDonnell made, which were of particular interest to us on detailed trade policy aspects.

4 As regards the basis of accession to GATT, McDonnell confirmed that China would re-negotiate entry on new terms. But, for domestic purposes, in particular with the possible introduction of trade legislation later this year or early next, it would be of considerable help to be able to say that China was only taking up again obligations accepted 40 years ago. Thus the purpose of this would be symbolic (it helps us too, in respect of the USSR). We had always understood what China was intending, but now we know why also.

5

McDonnell was extremely frank about dumping and anti-dumping

He recognised that if China wanted to be treated as a market economy she could not act like a state-trader. China therefore had in mind a system whereby export prices would be based on values which took into account the cost of buildings, raw materials and energy and Community or US

domestic prices. If China exported at fair price17

prices she would not expect to be accused of dumping or,

986

BOARD OF TRADE BICENTENARY