TNAG-1768-FCO40-2522-Hong-Kong-and-the-Multilateral-Investment-Guarantee-Agency-(-1988 — Page 19

59

CONFIDENTIAL

FM HONG KONG

TO IMMEDIATE FCO

TELNO 2886

OF 291030Z JULY 88

CONFIDENTIAL

INFO IMMEDIATE UKREP JLG HONG KONG, PEKING

57

YOUR TELNO 1953: HONG KONG AND MIGA

TOP COPY

117220

a DISTMOKIAN 8877

RECI

HKC 1021

IN C

29 JUL 1988

R

DISTA

rion

вр

(Minute to ODA).

AS REQUESTED IN PARA 3(1) OF TUR, WE PROPOSE THE FOLLOWING ADDITIONAL ARGUMENTS FOR OUR CASE:

(A) THE MIGA CONVENTION DOES NOT CONTAIN A CLEAR DEFINITION OF A ''DEVELOPING MEMBER COUNTRY'' (DMC). BY COMPARISON, THE GDP PER CAPITA OF HONG KONG AND SINGAPORE IN 1986 (THE MOST RECENT YEAR FOR WHICH COMPARATIVE FIGURES ARE AVAILABLE) WERE BOTH WITHIN THE RANGE OF US DOLLARS 6500 7000. NO JUSTIFICATION FOR NOT

TREATING HONG KONG ON EQUAL FOOTING WITH SINGAPORE.

(B) HONG KONG'S DMC STATUS WOULD ENABLE FOREIGN INVESTORS IN

HONG KONG TO BE PROTECTED BY MIGA INSURANCE SCHEMES. THIS WOULD BENEFIT IN PARTICULAR US INVESTORS WHO ARE THE LARGEST SOURCE OF OVERSEAS INVESTMENT IN HK'S MANUFACTURING SECTOR (ABOUT 40 PERCENT OF TOTAL FOREIGN INVESTMENT). THIS WOULD BE ESPECIALLY HELPFUL IN THE RUN UP TO 1997, WHEN CONCERN ABOUT THE NON-COMMERCIAL RISKS INVOLVED IN INVESTMENT IN HONG KONG MIGHT INCREASE. (C) AS REGARDS TRADE IMBALANCE, HONG KONG'S TRADE WITH THE WORLD WAS IN BALANCE IN 1987. IN THE FIRST HALF OF 1988, THE VISIBLE TRADE DEFICIT GREW TO US DOLLARS 1.1 BILLION, UP FROM US DOLLARS 0.8 BILLION DURING THE SAME PERIOD LAST YEAR.

2.

RE PARA 3(II) OF TUR, THERE ARE DIFFERENT VIEWS IN THE US ADMINISTRATION, SOME E.G. TREASURY SECRETARY BAKER ARE INCLINED TO INCLUDE HONG KONG IN SWEEPING STATEMENTS OF CONCERN ABOUT EXCHANGE RATES. YOU ARE ALREADY FAMILIAR WITH OUR LINE ON US-HK DOLLAR LINK (GOVERNOR'S LETTER TO HUM OF 28 MARCH 1988). OTHERS, SUCH AS UNDER SECRETARY OF STATE ALLEN WALLIS IN HIS SPEECH TO THE ASIA SOCIETY ON 26 APRIL 1988 HAVE CLEARLY DIFFERENTIATED HONG

KONG AND SINGAPORE FROM TAIWAN AND KOREA IN THE CONTEXT OF IMBALANCES AND RECOGNISED E.G. OUR OPEN MARKET. RECENT STATEMENTS FROM OECD

IN WHICH US IS AN ACTIVE PARTICIPANT HAVE RECOGNISED THAT HONG KONG

AND SINGAPORE HAVE CONTRIBUTED TO WORLD ECONOMIC GROWTH WITHOUT ''PUTTING UNDUE STRAIN ON THE PROCESS OF GLOBAL MACROECONOMIC ADJUSTMENT'' (REFERENCE: OECD ECONOMIC OUTLOOK VOL 43 JUNE 1988

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CONFIDENTIAL