TNAG-2242-FCO40-3223-Most-favoured-nation-status-for-China-impact-on-Hong-Kong-1991 — Page 32

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Kong of the loss of MFN status for China. The President indicated that it might be useful for the Hong Kong Chamber

of Commerce to visit the US and indeed this has now

happened. Washington have also been active in lobbying and coordinating with the Hong Kong External Trade Office.

Shielding Hong Kong

8.

It is difficult to see how Hong Kong could be shielded

from the effects of a US decision not to renew. MFN acts to

keep tariff rates low. If it was removed these rates would

increase by a factor between two and ten. The effect would

be to reduce significantly China's exports to the US. A

large percentage of these exports go through Hong Kong.

Thus Hong Kong would be hit firstly because there would be a

reduction in the reexports of China origin goods to the

United States, secondly because there would be a reduction

of imports from China which preceded those reexports, thirdly because there would be a reduction of exports from

Hong Kong to China of the raw materials and

semi-manufactures for producing the reexports, and fourthly there would be reduction in imports into Hong Kong of raw materials and semi-manufactures which precede the

corresponding exports to China.

One

9. How could the effect on Hong Kong could be limited?

possibility could be to exempt Guangdong province from the provisions since Hong Kong is most intimately associated

with Guangdong. But this would leave a large loophole in the regulations and this might not appeal to Congress.

10.

I attach some thoughts on this from the Economists.

ARPA

A R Paul

ROZAWM/3

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