TNAG-2242-FCO40-3223-Most-favoured-nation-status-for-China-impact-on-Hong-Kong-1991 — Page 38

3

19 April 1991

A Seaton Esq

FED

FCO

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Mr Paal.

Mr Store.

Grim

this old 5.

7

British Embassy Washington

3100 Massachusetts Ave N.W. Washington D.C. 20008-3600

Telephone: (202)

Telex: RCA 211427 or 216760-WUI 64224

Facsimile: (202) 898-4255

Nem Andren

US/CHINA: MFN

M

Mr life

IN

ACT

4/-

1.

I called recently on Doug Paal (NSC) to discuss a number of Far Eastern issues, including MFN for China. Paal conceded that the Administration was very disenchanted with Peking. The Chinese government had done nothing since the release of Fang Lizhi to improve US/China relations. The trade deficit was increasing, and, worse, the Chinese were behaving appallingly on arms proliferation. (He indicated that yet a further piece of information had recently come to light suggesting that the Chinese were actively pursuing arms sales). Moreover, the Chinese soured US/China exchanges by referring to fears of US hegemony in the wake of the Gulf War.

2.

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Against this background Paal emphasised that the Administration had not yet taken a decision on MFN for China. Congress believed the President was vulnerable on this, and China's behaviour - particularly on non-proliferation - played straight into their hands. It was possible that China/MFN would be linked with the Administration's request to Congress for fast track authority to negotiate free trade agreements with Mexico, and the completion of the GATT Uruguay round. If as seemed likely the Administration won those battles, Congress might feel even more inclined to retaliate by attacking MFN for China. Paal did not dispute that, at the end of the day, the President could probably sustain a veto, but he implied that the President would be reluctant to go that far, and expose himself once again to the accusation of kow-towing to the Chinese. He conceded that the Administration had been looking at the possibility of a deal with Congress involving some conditionality for 1992, but commented that he saw no sign yet of Congress being seriously interested in a deal.

Comment

3. None of this was new, although Paal's assessment was even bleaker than State's. In part, however, I suspect Paal was scaremongering. It obviously suits him to give the impression

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